Procore Technologies Update – MarketBeat

Procore Technologies logo on a screen

Key points

  • Procore Technologies reported another solid quarter marked by margin expansion.
  • The guidance is good and calls for sequential margin improvements over the course of the year.
  • Analysts are raising their price targets and pushing construction stocks higher.
  • 5 stocks we like better than Procore Technologies

Procore Technologies Inc. NYSE:PCOR is a construction management software platform serving the civil, commercial and residential markets. It helps manage workflows, costs and communication between owners, project managers and contractors from concept to completion. In 2018, the construction company got its IPO and grew at a high but slow double-digit pace.

Procore had a solid quarter; shares rise 5%

Procore’s revenue growth is slowing, but so what?

At 29%, it’s still robust and the margins are widening, which is more important. Regardless, the $260 million in net revenue beat consensus by nearly 500 basis points, compounded by earnings strength and solid 2024 guidance.

Revenue strength is driven by large customer growth and service penetration which also helps margin expansion. Customers contributing more than $100,000 in annual recurring revenue grew 27%, while those contributing more than $1 million grew 32%, affirming the platform’s usefulness for project managers.

Margin news is the most favorable in this report. The company continues to post GAAP losses, but losses are narrowing and adjusted margin improvement is accelerating in the new fiscal year. Gross margin improved by 200 GAAP and 100 adjusted basis points, while GAAP operating loss was more than halved.

Adjusted operating margin grew 1,500 basis points, from -8% to 7%. The key detail is that operating and free cash flow are positive and will more than double in 2023.

The guidance is also favorable and is based on the improvement in the margin. The company expects revenue growth to slow to 20% by the end of the year, but margin to expand sequentially throughout the year.

Adjusted operating margin is expected to increase approximately 50 basis points per quarter to deliver above-consensus results and outperform other construction industry stocks.

Analysts on board with Procore; revisions push the market higher

Procore has a sizable number of analysts following it and they have pegged it at a “Moderate Buy” on the company. The consensus of 14 price targets is that Procore has a fair valuation near recent price action, but the target has upside momentum. The consensus target is up more than 1,000 basis points over the past 12 months and rising after 2024 guidance.

The first analyst revision is from Piper Sandler, which reiterates its rating of “outperform” and raises the target to $80. If reached, the $80 target would be a two-year high; a move to the high target of $85 will put the market above the critical resistance.

Institutional activity is providing a tailwind to the market. Institutions and insiders own virtually all of these shares, and institutions have been buying them on the balance sheet in recent quarters. Their business saw a peak in the first half of the first quarter of 2024.

The technical picture: Procore in inversion

The Procore market has suffered for years, but is now in a turnaround phase. The reversal is marked by a bottom in 2022, higher support in 2023, and a surge to new closing highs in 2024.

Critical resistance is near $75. If the market can break above that threshold, it could advance 30% to 35% to retest resistance at the all-time high by mid-year. The risk is excessive. With so much investment from institutions, insiders and stocks are still significantly down from the highs, and resistance at $75 could be solid. The market is now in difficulty; consolidation or correction will follow if it fails to move higher.

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