Pegasystems Earnings: Strong Quarter as Customer Conversations on AI Ramp; Maintain $52 Fair Value

No-moat Pegasystems reported third-quarter results above our estimates on the top and bottom line as the firm had outsize subscription revenue along with improved operating efficiency as a result of headcount reductions and restructuring earlier in the year. Management noted high customer interest in generative AI, and we view Pegasystems as well positioned to benefit due to its history with integrating AI into its platform and natural fit with process automation. Our model adjustments are minor given the results, and we maintain our fair value estimate of $52 per share. Shares are trading near $40 and we view the stock as undervalued. However, due to heightened uncertainty arising from its ongoing litigation with Appian, we prefer other software names in our coverage with less overhang.