Goldman says shares of this education technology leader have 20% upside

Published Tue, Apr 18 202310:31 AM EDT

Shares of education technology company PowerSchool could see upside as the company focuses on cross-selling its large suite of products and expanding internationally, according to Goldman Sachs. Analyst Gabriela Borges upgraded the education technology stock to buy from neutral. Her $24 price target implies the stock will rally 20% from where it closed on Monday. "We believe the breadth of PowerSchool's platform is unique and this solidifies its leadership position," she said in a note to clients Tuesday. Shares were up nearly 3% in Tuesday trading. Despite the rally, the stock has fallen 10.3% so far this year. PWSC YTD mountain PowerSchool The company's offerings, which span state reporting, talent acquisition, registration, grading, testing and analytics, are used by 15,000 customers that represent more than 50 million students, or 80% of all U.S. and Canadian students in kindergarten through 12th grade. Among those clients are 90 of the top 100 districts in the U.S. Schools, districts and the government have attempted to improve online learning as the onset of the pandemic shuttered in-person instruction. In the aftermath, billions in federal aid has been put to work in a bid to close the learning gap left by the disruption. Still, Borges said many of the company's core offerings have only penetrated between 30% to 40% of the market. That means the company has room to grow within the market. Borges said the company largely drives growth through cross-selling given its large suite. Because the average customer uses two of the 19 total products available, PowerSchool still has a big opportunity to win over more business. Innovation within data analysis, with updates in the first half of the year coming to multiple products, can also help get clients to buy more of the suite, she added. The company saw net revenue retention hit 108% during the pandemic as schools pushed to improve the online learning experience. But that performance moderated in the second half of 2021 as a result of its acquisition of the platform Naviance and coming off strong 2020 bookings. In the second half of 2022, PowerSchool posted a 109% net revenue retention. Borges said the company should be able to continue at around that rate, with the majority of growth coming from cross-selling products. Looking internationally, Borges said 2023 and 2024 will be "pivotal" years for the company to expand its reach. The company could drive vendor consolidation in the international educational technology market, which she said is current fragmented. Partnerships and acquisitions can also help drive international expansion, Borges added. She estimated the total addressable market internationally is around $30 billion. PowerSchool has stated plans to grow its international business from under 2% of revenue to make up between $80 million and $100 million over the next three to five years, though Borges noted recent success in the international market could imply the company will beat those targets. — CNBC's Michael Bloom contributed to this report.