Tax software company Vertex has a long-term growth runway ahead, according to Jefferies. Analyst Samad Samana upgraded shares to buy from hold and raised his price target by $15 to $50, suggesting about 18.6% upside. This year, Vertex shares are up 56.5%, significantly outperforming the S & P 500’s 20% advance. “When we moved to the sidelines to start 2023, we underappreciated the durability of the VERX’s sub rev growth and the margin leverage on the other side of the post-IPO investment cycle,” Samana said in a note to clients. “While the stock has risen sharply as leverage has returned, we believe there’s plenty of margin left to harvest. This paired with healthy Cloud rev growth should support a premium valuation.” VERX YTD mountain Vertex performance this year. Vertex is set to deliver strong cloud growth over the next few years, according to the firm. The company’s management expects 28% cloud growth this year, and Samana thinks it can see compounded annual growth of more than 20% through at least 2027. Samana said Vertex’s cloud revenue growth opportunity is supported by its September acquisition of e-invoicing provider Ecosio. Vertex could also see continued strong customer migration from on-premise software to the cloud, benefitting its revenue growth and margins, he said. “Industry footprint and existing customer base combined with Ecosio’s capabilities will allow it to quickly gain market share once fully integrated,” Samana said. “While mgmt has called out a two-year investment required for the Ecosio integration as well as investments in AI-based initiatives, we believe VERX’s faster-than-expected return to pre-investment cycle margins demonstrates mgmt’s commitment to opex discipline and ability to drive leverage,” he added. Eight of 12 analysts covering Vertex have a buy or strong buy rating on the stock, LSEG data shows. However, the average price target points to a slight decline going forward.
