Ladenburg Downgrades Progress Software, Cites Valuation

Shares of Progress Software Corporation PRGS have gained 17 percent since March 14, 2016. Ladenburg’s Glenn G. Mattson downgraded the rating on the company from Buy to Neutral, citing valuation. He added that so far the Telerik acquisition had been disappointing.

Progress Software’s shares are currently trading at a multiple higher than their 5-year average as well as significantly above software peers with similar growth rates, analyst Mattson noted. While Progress Software has a 3-year trailing EPS growth rate of about 14 percent, the forecast for forward EPS growth was below 10 percent, that too aided by a shrinking share count.

Telerik Acquisition

In late 2014, Progress Software acquired application development company Telerik for $262 million, in an attempt to boost growth. Telerik’s growth decelerated in 2015, and in Q1 of 2016 Progress Software announced a disappointing top-line guidance, mainly on account of a further slowdown at Telerik.

“With muted overall guidance for Telerik over the rest of F16 (revenue and bookings growth), we believe achieving the long-term growth targets are unlikely over the foreseeable future,” Mattson commented.

Decelerating Growth

Progress Software’s growth has decelerated, with the wearing off of pent-up demand from a new release of OpenEdge. “The company was hoping to see better growth from the Pacific PaaS offering but it is still too small as a percent of revenue to make an impact,” the analyst pointed out.

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