BUY (XTLY, $13.65)
Exactly The Growth We Were Looking For - Initiating With A BUY Rating & $17 PT
August 2, 2016
Investment Conclusion. We are initiating coverage of Xactly with a BUY rating and a $17 twelve-month price target based on our belief that the company is well positioned to benefit from the growth of the Sales Performance Management (SPM) software to midcap and enterprise companies. Currently, about four-fifths of companies still use spreadsheets and manual models to track sales performance and behavior despite the knowledge that reliance on them make it difficult to manage sales most efficiently. The issues are exacerbated because sales is the lifeblood of any business and as a result using a less than optimal program can sacrifice accuracy, efficiency, and ultimately the all-important, revenues. Xactly software solves these problems and ultimately helps these companies accelerate revenues. Xactly has recurring revenue growth greater than 20% for the past several years and we believe that this growth should continue with greater than 102% recurring revenue retention. The opportunities created by offering additional software to complement its core products based on the vertical the client inhabits is also an advantage. We are establishing fiscal 2017 and fiscal 2018 revenue estimates of $96 million and $117 million, respectively. We believe that shares of Xactly are undervalued given the company’s growth and dependable, quality revenues. Our opinion is that Xactly shares, which currently trade at 3.1x fiscal 2018 EV/Revenues should trade at a discount of approximately 30% to the sector average of 5.8x resulting in a $17 twelve-month price target (or 25% upside to the current share price).
Source: Company Reports, National Securities Corporation Estimates
Xactly is headquartered in the San Francisco Bay Area. Founded in 2005 by CEO Christopher Cabrera, Xactly provides cloud-based software that deploys incentive compensation solutions to its subscribers. The main goal of Xactly is to align employee business decisions with the vision of the company. This pure-play SaaS business was the first 100% cloud-based provider to focus its efforts on incentive compensation and sales performance management. As of April 2016, Xactly had approximately 870 customers with 268,000 subscribers, serviced by 402 employees....
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