Bentley Systems is expected to continue performing well as demand for civil engineering services bucks broader trends, Goldman Sachs says. Analyst Kash Rangan upgraded the stock to buy from neutral and upped his price target to $44, which implies an upside of 27.8% from Wednesday’s close. He said Bentley is poised to outperform even in a “more turbulent economic environment.” “Bentley is, in our view, a unique software franchise and is poised to continue to gain share in the large Infrastructure Engineering Design market,” he said in a note to clients. Software companies have struggled in recent months as earnings have slid. Meta and Salesforce are among big-name companies that have resorted to layoffs as a mechanism for staying financially viable. But Rangan thinks Bentley has a better trajectory, pointing to strong earnings this year, 99% account retention and 110% annual recurring revenue. He also said the company is able to consistently increase operating margins due to business expansion. He said leading indicators show a “strong new business environment.” The stock will also be helped by secular tailwinds such as public infrastructure investments, increasing digitization of civil infrastructure and the growing need for virtual models of physical structures, typically called “digital twins.” On top of that, the company will likely sustain double-digital topline growth and margin expansion, he said. Bentley is also helped by “competitive advantages” such as a sticky customer base and a gross retention rate of more than 98%. To be sure, the stock’s performance could be impacted by a slowdown in commercial and facilities or an increase in competition that could bring down retention rates. Missing margin expectations could also hurt valuation given management’s pledge to continue expanding by at least 100 basis points every year. Smaller investments than expected from infrastructure bills could also hurt the business. — CNBC’s Michael Bloom contributed to this report.
