Progress Software (NASDAQ:PRGS) Slips After Weak Guidance

Progress Software Gives Mixed Guidance, Shares Fall

Progress Software (NASDAQ:PRGS) is well-positioned for 2021 as the purveyor of business applications and related solutions. The company experienced a small hiccup during the middle of 2020 but that is no surprise. The downturn in economic activity and widespread shutdowns had a negative impact on very many businesses.

The good news is that the hiccup was small, revenue fell less than -5.0% YOY during the worst of the crisis, and therebound is underway. The company just reported a great 4th quarter and provided a positive outlook for 2021 but shares are down because of it. The reason is some expected weakness in the 1st quarter but that is nothing to be worried about. Not only is the guidance likely to be light but the forecast for the remainder of the year more than offsets the weakness.

Progress Software Beats Top And Bottom Line Consensus

Progress Software beat the top and bottom line consensus but that really isn’t saying much. The average stock is expected to beat its consensus by a wide margin and Progress didn’t. The $129 million in reported revenue is up 4.6% from last year, which’s good, but only beat the consensus by 0.8%. The average S&P 500 company is expected to beat by more than 500 basis points or 5% of the consensus so the light-beat may be adding downward pressure to share prices.

Moving down the report the company operating margins improved to 15% GAAP and 37% adjusted to drive solid growth on the bottom line. The company’s net income grew 15% YOY% when adjusted for acquisitions. On a GAAP basis, the $0.39 in EPS beat by $0.02 and reversed a loss in the prior year. On an adjusted basis $0.91 beats by $0.13.

The company’s guidance is good but comes with a caveat. While the full-year outlook is a range above the current consensus the 1st quarter is not. The company is expecting both revenue and earnings to fall short of consensus before accelerating in the 2nd quarter to outpace consensus for the rest of the year.

“As we begin to realize synergies from the acquisition of Chef, we are very well positioned to deliver strong fiscal 2021 results," says CFO Anthony Folger. Regarding the acquisition of Chef, management says the integration is progressing faster than expected and will continue to deliver cost-savings synergies well into fiscal 2021.

Analyst Dan Ives of Wedbush had this to say in the wake of the report “Analyst Dan Ives: "We believe the Chef acquisition could be a potential 'game changer' for Progress over the next few years as the strategy and financial upside around this deal is impressive and starting to playing out in the field. The acquisition of Chef looks like a deal that was well executed and is in PRGS's wheelhouse … "

The Technical Outlook: Progress Sofware Pulls Back From High

Progress Software has staged a solid rebound from the March 2020 lows and is fast approaching the all-time-high levels despite a post-earnings pullback in price action. The Q4 news has shares down about 2.5% in premarket action and looking like a deeper pullback could be in order. If price action continues to fall it may move as low as the short-term EMA or $45 level before finding solid support and resuming the uptrend. If support kicks in before the EMA investors should expect price action to move sideways within a range until later in the quarter. In the interim, the stock pays a safe 1.45% yield and has a positive outlook for future dividend increases.