There’s a buy opportunity in this little-known software company, Needham says
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Needham analysts believe the recent pullback in software company Alight warrants a deeper look. The cloud-based business solutions company has lost more than 18% in the current quarter, dragging shares down 9.5% for the year. The sell-off came following its second-quarter earnings in August, during which the company reported a 36.3% year-over-year decline in business process as a service bookings. A follow-on offering also contributed to the sell-off, according to analyst Kyle Peterson. “Bookings noise creates a buying opportunity. … Our view is that the bookings impact is manageable given the [long-term] nature of BPaaS deals, and we believe that many of these will close once the macro improves,” Peterson wrote in a Thursday note. Peterson reiterated his buy rating and top pick designation on shares. The analyst also maintained his $13 price target, implying almost 72% upside potential from Wednesday’s close. “While we believe the recent follow-on equity offering was frustrating for some investors given the timing, it further reduces sponsor overhang (the sponsors also gave up two board seats after the offering), and we like that ALIT did a concurrent buyback to help return capital to shareholders,” Peterson wrote. The analyst highlighted Alight’s diverse offering of health care, benefits and payroll solutions. The company’s strong financial profile, including its healthy margins, cash flow and high client retention rates, translate into a durable revenue stream, Peterson added. “We believe the sell-off is overdone, with the shares trading at an EV/EBITDA multiple of 8x our FY24 estimate,” he said. “We are confident that ALIT is on the right track, and expect bookings to bounce back as the macro improves.” — CNBC’s Michael Bloom contributed to this report.
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