Key Points
- Morgan Stanley has begun covering the supply chain software market, identifying significant potential but advising caution.
- It recommends buying SPS Commerce (SPSC), giving it an “Overweight” rating and a $180 price target.
- The bank suggests selling Manhattan Associates (MANH), issuing an “Underweight” rating due to its high valuation.
- The sector is at a key “inflection point” for cloud adoption, with penetration currently at only 40%.
Morgan Stanley has begun covering the $45 billion supply chain software market, telling clients that the sector is at a key turning point for cloud adoption and is ready for consolidation. However, the bank warns that investors need to be selective.
In a new report, the investment bank gave a bullish “Overweight” rating to SPS Commerce (SPSC), setting a price target of $180, which suggests a potential 30% upside. Analysts believe investors are underestimating the company’s steady growth, particularly as it benefits from global tariffs, and expect its profit margins to improve. They feel the stock is a good value.
On the other hand, Morgan Stanley issued a bearish “Underweight” rating for Manhattan Associates (MANH) with a $190 price target. The bank is concerned about the stock’s high valuation, noting that a recent slowdown in its cloud business could impact future earnings, a risk it says is not currently reflected in the stock price.
The bank described the supply chain software sector as having some of the “best fundamentals” in the entire software industry. Still, it noted that the stocks have underperformed this year. They also initiated coverage on Descartes Systems Group with a neutral “Equal-weight” rating, citing a slower pace of growth.
Morgan Stanley is optimistic about the sector’s future, as cloud adoption remains low at just 40%, leaving ample room for growth. However, they stress caution. “It is prudent to be selective,” the bank concluded, “given high valuations leave little room for error.”
