Piper Sandler starts at SAP at Buy, highlights ’multiple tailwinds beyond 2030’

Investing.com -- Piper Sandler initiated coverage on SAP (NYSE:SAP) (ETR:SAPG) stock with an Overweight rating and a price target of €350, citing "multiple tailwinds [that] extend beyond 2030.”

The brokerage sees SAP’s ongoing cloud transformation as the primary catalyst for both earnings and valuation multiple expansion.

According to Piper Sandler, SAP’s Cloud Enterprise Resource Planning (ERP) business has grown into a €17 billion run-rate with 34% year-over-year growth and is on track to surpass 50% of total revenue mix for the first time this year.

"This cloud mix shift positions SAP to sustain double-digit revenue growth alongside improving margins that could compound free cash flow (FCF) at 15-20% annually through 2030+," analysts led by Brent A. Bracelin wrote.

They highlight several growth drivers behind the bullish stance.

The first is the large opportunity from ERP customers still running on older on-premise systems. About 60% of SAP’s installed ERP base has yet to convert to cloud-based ERP software suite S/4HANA, representing a potential €28 billion uplift to the existing Cloud ERP segment.

The analysts note that the end of ERP Central Component (ECC) support in 2027, extended to 2030 in some cases, combined with AI-driven data needs, is encouraging enterprises to transition their core back-office systems to the cloud.

The team also sees significant upside from SAP’s ability to cross-sell additional products across its customer base.

"Customers with 4+ products more than doubled to 23% from 9% in 2021," they said, adding that roughly 77% of the installed base still uses fewer than four cloud solutions, providing ample room for further expansion.

SAP’s push into smaller enterprises offers another avenue for growth. New go-to-market initiatives in 2025 are expected to open access to 400,000 partner-assigned accounts in the mid-market segment.

Furthermore, Piper Sandler points out SAP’s progress in data and AI monetization through its Business Data Cloud (BDC), supported by partnerships with Databricks, Palantir (NASDAQ:PLTR), and others.

The broker estimates BDC could "quickly grow into an incremental €1B data/AI unlock within two years, helping boost top-line growth by 1% point."

Despite having underperformed the broader software sector over the past two decades, SAP has outperformed in the last two years, driven by the Cloud ERP shift. Piper Sandler believes there is still room for valuation multiple expansion.

The software giant’s next twelve months enterprise value-to-sales (EV/S) multiple has expanded to 8.2 times (compared to 4.7 times), “but still has room to run, in our view, relative to what occurred at its two closest peers.”

This article first appeared in Investing.com