PEGA
Pegasystems Inc.
$34.35
Platform & Compounding FCF
80%
Two-stage FCF DCF
Moderate
·
Conviction
Undervalued
Trading 38.6% below fair value
You pay
$34.35
Bear
$40.45
Fair
$55.95
Bull
$71.73
Bear
$40.45
+17.8%
7% stage 1 growth, 11% discount
Fair
$55.95
+62.9%
11% stage 1 growth, 11% discount
Bull
$71.73
+108.8%
15% stage 1 growth, 11% discount
Key Value Driver
FCF growth rate (11% base case)
Terminal Value % of EV
40%
Implied Market Multiple
14.4x
Summary
Our base-case estimate uses a two-stage discounted cash flow model based on free cash flow. We then blend that result with the average analyst price target of $56.60 from 23 analysts, using a 25% weight on analyst consensus. That produces an estimated intrinsic value of $55.95 per share.
Warnings
Stock-based employee pay equals 39% of profits. This dilutes existing shareholders, so cash flow alone overstates what owners really earn.
Key Risks
- P/E alone misleads — earnings depressed by growth investment
- Cyclical or commodity businesses may be misclassified as platforms
- Terminal value dominance suggests sensitivity to long-run assumptions