Goldman Sachs predicts shares of this construction software company will surge. The firm upgraded shares of Procore Technologies to buy on Thursday, with a price target of $75, representing 41% upside from Wednesday’s $53.18 close. This year, shares of Procore have gained 18%. Analyst Kash Rangan says that while Goldman had a previous neutral rating on the stock, the company’s outperformance on both operating margin and revenue in 2022 into the first quarter of 2023 will “accelerate its profitability timeline.” “We believe that Procore is well-positioned to deliver upside to its F23 revenue guidance for 26% in F23,” Rangan said. “As such, we are raising our top-line estimates in F23 by 3% to 29% revenue growth.” The company develops software to oversee both large- and small-scale construction projects from start to finish, as a sort-of one size fits all management program. The industry overall lacks a streamlined method of digitization, and Goldman Sachs highlighted the firm’s diversification across a variety of market sizes to support the stock upgrade. PCOR YTD mountain Goldman Sachs thinks shares of Procore Technologies can deliver investors as much as 41% upside from current trading levels. “Since construction is a low-margin business, Procore’s customers by default bid on a wide array of projects in various industries to reduce concentration risk, which inherently benefits Procore’s own diversification efforts,” Rangan said. Meanwhile, the analyst also highlighted sentiment coming from Procore executives, which has signaled a strong conviction that the company can indeed meet upwardly revised projections for full-year revenue growth. “We note that in revising F23 guidance to 26% revenue growth (from 25% in 4Q), which exceeded the 1Q beat magnitude, management again signaled its high degree of confidence in delivering on its outlook in almost any environment,” Rangan said. A backlog of customers, the analyst added, could also serve as protection from short-term declines in construction demand. “We believe customer backlog duration is an underappreciated aspect of Procore’s top-line narrative as it provides meaningful insulation from any near-term demand degradation since its customer base has to work through their existing backlogs before a slowdown in construction spending/demand would impact their ability to land and execute on new projects,” Rangan said. — CNBC’s Michael Bloom contributed to this report.
