ROP - Roper Technologies upgraded to Neutral at JPMorgan

2023-03-22 19:13:23 ET

Roper Technologies ( NYSE: ROP ) on Wednesday was upgraded to Neutral from an investment rating of Underweight by analysts at JPMorgan. They said the industrial-technology company is fairly valued based on the outlook for revenue and free cash flow growth.

“The stock trades around its average 30% historical premium on P/E and a clean FCF yield of 4%, which screens as attractive versus software companies we cover that are currently trading in the 3%-3.5% range,” C. Stephen Tusa, analyst at JPMorgan, said in a March 22 report. “We think a more clean portfolio and visible growth better support the premium here, especially if the earnings environment gets choppy for others.”

Roper ( ROP ) in the past few years has undertaken a strategy to acquire specialty-software businesses while selling off subsidiaries that manufacture equipment. Acquisitions in the past few years include Frontline Education, a maker of school administration software, and Vertafore, which makes software for the insurance industry.

JPMorgan raised its price target on Roper ( ROP ) to $420 a share from $385 a share, based on a multiple of 25 times estimate cash EPS for 2024.

“We agree this is a stable portfolio with high margins that can grow organically above GDP over time but continue to be concerned that the algorithm for mid-teens FCF compounding is not as easy as presented,” according to JPMorgan. “The stock has de-rated to better reflect a more reasonable rate of compounding, partly due to high valuations in targeted software verticals.”

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