SAP Earnings: Big EPS Beat, Shares Undervalued

Key Morningstar Metrics for SAP

• Fair Value Estimate: $278.00
• Morningstar Rating: ★★★
• Economic Moat: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of SAP’s Earnings

SAP’s SAP EPS was well above company-compiled consensus and the company remained confident on 2025 guidance despite current economic uncertainties. Shares were up 9% intraday.

Why it matters: SAP’s earnings report was a bellwether for the potential tariff impact on the software sector. Performance was strong, particularly profitability, and cloud growth remained healthy. Importantly, 2025 guidance was maintained.

• 2025 guidance was maintained as cloud conversion rates in the pipeline remained solid and visibility is still good. SAP remains confident on the bottom end of cloud revenue guidance, barring a major deterioration in the global economy.
• EPS of EUR 1.52 beat the EUR 1.32 consensus due to a surprisingly strong non-IFRS operating margin increase to 27.2% from 19.1% (consensus of 24.4%). This was driven by operational efficiencies from the 2024 transformation program.

The bottom line: We maintain our EUR 265 fair value estimate for wide-moat SAP and view the shares as undervalued. We raise our ADR fair value estimate to $302 from $278 due to the currency impact. Shares have declined recently on macroeconomic concerns, but will likely recover given strong results.

• Despite potential upside in 2025 margins given the strong first quarter, we are broadly maintaining our estimates given macroeconomic uncertainties and a developing currency headwind.

Coming up: Cloud revenue growth is expected to accelerate slightly in the second quarter due to an easier comparative. Transactional cloud revenue, which is most exposed to the economy, will likely deteriorate this year, but not enough to have an impact on guidance.