SAP’s Stock Growth To Be Fueled By Cloud Segment?

by Trefis Team
+9.03%
Upside
139
Market
151
Trefis
SAP
SAP
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[Updated 12/08/2021] SAP Update

SAP’s stock (NYSE: SAP) at the current price of $135 has remained nearly flat compared to the start of 2021. During the first nine months of the year the company saw a moderate revenue growth of 5% y-o-y, but Cloud Subscriptions and Support saw a healthy growth of 18% y-o-y as companies continue to move toward digitization. Earnings for the nine months also increased to $3.83 compared to $3.13 for the same period of the previous year. We believe for the full year 2021,  growth will be fueled by the Cloud Subscriptions and Support segment.

In 2021 we expect SAP’s revenues to rise to €29.1 billion ($35.2 billion) and net income to increase to €5.3 billion ($6.4 billion), bringing its EPS figure to €4.46 ($5.39). For FY 2022, we expect revenues to further increase to €30 billion ($36.3 billion). While its net income is likely to increase to €6.2 billion ($7.5 billion), bringing its EPS figure to €5.26 ($6.37), which coupled with the P/E multiple of 23.8x and an exchange rate of $1.21 per €, will lead to SAP’s valuation of $151, which is 12% above its current market price. 

[Updated 09/02/2021] Moderate Growth For SAP’s Stock In Near Term? 

At the current price of $150, SAP’s stock (NYSE: SAP) we believe has a moderate upside potential. The stock has gained more than 15% since the start of the year. The company has seen moderate revenue growth over the first half of 2021 led by the Cloud Subscriptions and Support segment which grew by 19% y-o-y to $2.7 billion in Q2 2021. Earnings for the quarter also increased to $1.39 compared to $0.83 for the same period of the previous year. We believe for the full year 2021 SAP’s revenues growth will be fueled by the Cloud Subscriptions and Support segment which is expected to grow by more than 20% for the year.

In 2021 we expect SAP’s revenues to rise to €29.6 billion ($35.8 billion) and net income to increase to €5.7 billion ($6.96 billion), bringing its EPS figure to €4.86 ($5.89). For FY 2022, we expect revenues to further increase to €30.6 billion ($37.1 billion). Further, its net income is likely to increase to €6.9 billion ($8.34 billion), bringing its EPS figure to €5.83 ($7.06), which coupled with the P/E multiple of 23.3x and an exchange rate of $1.21 per € will lead to SAP’s valuation of $164, which is 9% above its current market price. 

[Updated 04/29/2021] Does SAP’s Stock Have An Upside After Recent Rally?

Having grown 45% since the end of 2018, SAP’s stock (NYSE: SAP) has moderate upside potential. SAP, a German multinational corporation which develops enterprise software to manage business operations and customer relations, saw its stock grow from $100 at the end of 2018 to near $144 now, compared to the S&P500 which gained 68% since the end of 2018.  In 2020, the company saw revenues and earnings grow primarily due to the Cloud Subscriptions and Support segment which witnessed a 28% growth in revenues. In Q1 2021, the company saw its revenue grow by 4.7% y-o-y to $7.5 billion led by the Software Licenses segment which grew by 15.2% y-o-y and the Cloud Subscriptions and Support segment which grew by 14.8% y-o-y. The earnings increased to $1.05 compared to $0.75 in the same period of the previous year. We expect the stock to see moderate growth in the near future.

In 2021 we expect SAP’s revenues to rise to €29.6 billion ($35.8 billion). Further, its net income is likely to increase to €5.7 billion ($6.96 billion), bringing its EPS figure to €4.86, which coupled with the P/E multiple of 25.6x and an exchange rate of $1.21 per € will lead to SAP’s valuation at $151, which is 5% above its current market price.

[Updated 02/10/2020] SAP Stock: At $131 Does SAP’s Stock Have Upside?

At the current price of around $131 per share, we believe SAP’s stock (NYSE: SAP) has moderate growth potential in the near term. SAP stock has remained nearly flat since the end of 2019 compared to the S&P 500 which has increased by 21% in the same period. SAP saw revenue rise by 8.7% to $33.3 billion (flat in euro) for 2020. Net income improved due to operational efficiency as the earnings per share went up to $5.29 in 2020 from $3.11 in the previous year.  The company has seen earnings rise over the recent years, while its P/E multiple has fallen slightly. We believe the stock has moderate growth potential in the near term.

The 32% rise in SAP stock price from 2018 to now is justified by a significant rise in earnings during those years. SAP’s revenue rose from $28.3 billion in 2018 to $33.3 billion in 2020. Net Income margin increased from 16.5% in 2018 to 18.8% in 2020. On a per share basis, earnings went up from $3.92 to $5.29 helped by a 1% decrease in shares outstanding.

During the same period, the P/E multiple fell from 25.4x to 24.6x. The P/E improved slightly in 2021 and is currently at 24.8x.

Where Is The Stock Headed?

The global spread of coronavirus led to lockdown in various cities across the globe, which affected industrial and economic activity. This, in turn, adversely affected consumption and consumer spending. However, SAP’s revenues and earnings grew in 2020 primarily due to the Cloud segment which witnessed a 28% growth. Software Support segment revenue also grew by 9% for the year.

The actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the valuations become important in finding value. Though market sentiment can be fickle, and evidence of an uptick in new cases could spook investors once again. 

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

 Returns Dec 2021
MTD [1]
2021
YTD [1]
2017-21
Total [2]
 SAP Return -12% 1% 52%
 S&P 500 Return -2% 22% 105%
 Trefis MS Portfolio Return -3% 40% 276%

[1] Month-to-date and year-to-date as of 12/6/2021
[2] Cumulative total returns since 2017

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