Stock (Symbol) |
Ultimate Software (ULTI) |
Stock Price |
$190 |
Sector |
| Technology |
Data is as of |
| December 10, 2016 |
Expected to Report |
| Jan 31 – Feb 6 |
Company Description |
 ULTI is a cloud provider of people management solutions, referred to as human capital management (HCM). UltiPro product suite (UltiPro) is engaging solution that has human resources (HR), payroll, and benefits management and includes global people management, available in approximately 10 languages with over 35 country-specific localizations. Its solution includes feature sets for talent acquisition and onboarding, HR management and compliance, benefits management and online enrollment, payroll, performance management, compensation management with salary planning, budgeting, and development of incentive plans, succession management, reporting and analytical decision-making and predictive tools, and time and attendance. Its customers represent a variety of industries, including manufacturing, food services, sports, technology, finance, insurance, retail, real estate, transportation, communications, healthcare. Source: Thomson Financial |
Sharek’s Take |
 A better economy may be on the horizon, which is good for the labor market, and could benefit Ultimate Software (ULTI). Ultimate Software provides medium sized and large companies software to do human resources work, and stores the info on the cloud. The company was founded in 1990 by the current CEO Scott Scherr, went public in 1998, and went to a cloud-based platform in 2002. Its UltiPro processes payroll, benefits, and time clock abilities and optional add-ons include recruiting and new employee tools, as well as its Talent Management suite which is composed of Performance Management, Talent Predictors and Succession Management. Revenue since 2002 has grown at a CAGR of 20% — with record sales each year. The company has a beautiful headquarters just west of Ft. Lauderdale Florida and InformationWeek identified Ultimate as the most rewarding place to work in IT. Forbes also ranked it 8th on its 2016 list of the most innovative growth companies. ULTI has a a customer retention rate of 97%. Sales have grown quarter-over-quarter on a consecutive basis since June 2013. Revenue grew 26.8% last qtr, which is the exact same percentage recurring revenue grew at. But profit growth was just 13%, and is expected to be slower than normal the next couple of quarters, because the company has boosted staff to support sales growth beyond their original expectations. So “slower profit growth” in this case is good. ULTI stock had a P/E of 67 in 2014 & 2015. Right now it sells for 48x 2017 estimates. My Fair Values for 2017 & 2018 are $240 and $300. |
One Year Chart |
 This stock sold off after last qtr’s profits were announced, but all the reviews from analysts were positive. I think the machines that own high-growth stocks may have systematically sold. I’m not a fan of the slower growth either, but they are spending to grow. Profit Estimates for the next 4 qtrs are 14%, 11%, 22% and 35% so perhaps growth will get back to normal in the 2nd half of 2017. I feel the Est. LTG of 23% is too low and that this company has the ability to grow profits 30% per year. The P/E of 48 is also low to me, this stock usually has a P/E in the 60s. |
Fair Value |
 My Fair Value on this stock is 60 times earnings, which is quite low compared to the P/E of prior years. Still, that equates to solid upside for the next two years. The risk with this stock is the economy going into a recession. But now GDP growth looks to accelerate next year (in the U.S. anyway) so it looks like clear sailing ahead. Europe might have a tougher time growing. |
Bottom Line |
 Ultimate Software has a full suite of human resources services that can help companies move their HR to the cloud. What’s nice is ULTI usually has a P/E in the skies and now it is reasonable (down from 62 last qtr to 48 now). But, the stock might be a little weak the next 6 months as profit growth is expected to be slow with due to an influx of hiring. ULTI ranks 13th in the Growth Portfolio Power Rankings and Aggressive Growth Portfolio Power Rankings. |
Power Rankings |
Growth Stock Portfolio
13 of 34Aggressive Growth Portfolio 13 of 18Conservative Stock Portfolio N/A |
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