Pegasystems: Courts Overturn $2 Billion Judgment From 2022

We are raising our fair value estimate for no-moat Pegasystems to $77 per share, from $70 previously, after a 2022 ruling in Virginia was overturned upon appeal. We had included a $1 billion theoretical settlement in our model, and upon removing it, we see additional value unlocked, leaving the shares slightly undervalued. Appian was previously awarded $2.0 billion in a case involving misappropriation of trade secrets. A Virginia court of appeals determined that errors were made in the original ruling that required the case to be re-tried. While the initial ruling caused us to downgrade our moat rating for Pegasystems to none from narrow, we have maintained the company was moaty. We think consistent execution over the coming quarters should help improve returns and our longer-term confidence along with them, which would allow us to reconsider our moat rating. That said, Appian is appealing this ruling, so we still see an overhang for the stock.