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Needham analyst Kyle Peterson reiterated a Buy rating on Donnelley Financial Solutions, Inc. (NYSE:DFIN), raising the price target to $65 from $56.
The analyst applauds the company's significant focus and progress in the software business, with core offerings seeing increased adoption.
In software, Peterson believes that the growth has been broad-based, with products such as Arc Suite, Venue, and Active Disclosure all performing well.
The analyst models 4.5% software revenue growth in FY23 and 6% growth in FY24.
The analyst writes that DFIN's transition away from print business towards software has been beneficial for margins and efficiency.
While margins have compressed due to weaker capital markets activity, Peterson expects margins to improve steadily in FY24 and beyond.
The analyst projects ~100 bps of EBITDA margin expansion in FY24, believing margins could be upside if capital markets activity improves.
Peterson added that as macro conditions improve, software growth can accelerate through increased adoption, new logo wins, and pricing gains.
In addition, the recent uptick in capital markets activity will benefit DFIN from a transaction-fee perspective and the "creation" of additional sticky revenue through recurring compliance software and services.
The analyst raised FY23 revenue estimates to $800.7 million from $796.9 million.
For FY24, the analyst raised the revenue estimate to $831.5 million from $824.2 million.
Price Action: DFIN shares are trading higher by 3.62% to $55.77 on the last checked Friday.
Posted In: DFIN
