Temenos shares soar on Jefferies upgrade

Investing.com -- Temenos Group AG (SIX:TEMN ) shares jumped over 6% on Thursday following an upgrade by analysts at Jefferies, who highlighted the company’s new management and revised strategy as catalysts for a potential turnaround. 

The appointment of CEO Jean-Pierre Brulard marks a shift towards a more conservative approach, with realistic growth targets and greater investment, which Jefferies believes could address Temenos’ historical execution challenges.

Jefferies upgraded the stock to a "buy" rating and raised the price target to CHF 72, reflecting a 20% upside. 

The analysts noted that Temenos’ renewed focus on consistent investment, including plans to double its salesforce over the next four years, sets the foundation for improved performance. 

Although the company has lowered its long-term growth projections and free cash flow targets, these adjustments align with market consensus and signal a more credible strategy. 

Jefferies projects a 14% compound annual growth rate in free cash flow through 2028, a metric deemed undervalued given the stock’s current discount to peers.

The note says that Temenos’ market leadership in core banking software and its substantial headroom for growth, supported by a recalibrated total addressable market and an ongoing shift towards subscription-based revenues. 

While acknowledging challenges such as heightened competition and the transition in leadership, Jefferies expressed confidence in Temenos’ ability to meet its revised targets, a scenario that could drive re-rating potential for the stock.

This optimistic outlook is boosted by Temenos’ robust market position and growing demand in the banking sector for digital transformation solutions. 

The analysts also flagged operational simplifications and a strong focus on the U.S. market as further indicators of Temenos’ potential for sustained success.

Source: Investing.com