Stock (Symbol) |
Ultimate Software (ULTI) |
Stock Price |
$195 |
Sector |
| Technology |
Data is as of |
| March 17, 2017 |
Expected to Report |
| Apr 24 – 28 |
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 |
 Ultimate Software (ULTI), which provides medium sized and large companies cloud-based software to do human resources work, is delivering lower than normal profit growth as it steps up hiring. In 2016, revenue rose 26% (with recurring revenue 84% of total revenue) as sales exceeded expectations, thus the company increased hiring, which is leading to slower than normal profit growth (just 10% last qtr). Ultimate Software 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% and sales have grown quarter-over-quarter on a consecutive basis since June 2013. Profit growth Estimates for the next 4 qtrs are 0%, 21%, 37% and 36% so growth is slow now yet looks to be accelerating soon, but NxtQtr’s estimate just fell for the 2nd time in two qtrs. Since ULTI is going through a period of slower profit growth due to a surge in hiring, the stock is currently range bound. Qtrly Estimates show +30% growth later in 2017 and that might cause the stock to go higher. My upside to 2017’s & 2018’s Fair Values is 12% and 39%. |
One Year Chart |
 ULTI’s sales grew 23% last qtr, which was down from 27% a qtr earlier. Profit growth was 10% which missed estimates of 14% growth. 2017 profit estimates ticked down from $4 to $3.97 and NxtQtr’s estimate declined. Now qtrly profit growth is expected to be 0%, 21%, 37% and 36% the next 4 qtrs. That’s a nice Est. LTG of 23% per year. The P/E would be high for most 23% growers, but ULTI often has a P/E in the 60s. |
 My Fair Value declines from 60x earnings to 55. Now the stock has a 2017 Fair Value if $218. But I still think the stock will hang around here the next qtr or two. |
Bottom Line |
 Ultimate Software has been a tremendous stock the past decade and the company continues deliver record sales each and every qtr. But there’s a couple negatives in the short-run such as reduced profit estimates due to an influx of hiring. ULTI ranks 16th in the Growth Portfolio Power Rankings and I will sell it from the Aggressive Growth Portfolio because the company missed profit estimates then guided lower and I’m affraid another miss could jolt the stock lower. |
Power Rankings |
Growth Stock Portfolio
16 of 31Aggressive Growth Portfolio N/AConservative Stock Portfolio N/A |
