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Magic Software Enterprises Ltd (MGIC)
NASDAQ:MGIC
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Magic
(NASDAQ:MGIC)
Rating:80Outperform
Price Target:
$17.50
▲(8.29%Upside)
Positive Factors
Market Position
The merger with Matrix I.T Ltd. is seen as a strategic opportunity to strengthen Magic’s market position through an expanded product and service offering at a greater, and more resilient, global scale.
Revenue Growth
North America revenue increased 11.1% year-over-year and revenue from Israel increased 17.7% year-over-year.
Negative Factors
Billable Days Reduction
Second quarter 2025 will include 4.5 fewer billable days compared to the first quarter, equivalent to a roughly 7% reduction in time and material capacity.
Merger Timeline
The pending merger with Matrix is now expected to close during the fourth quarter of 2025, slightly later than prior expectations.
Magic (MGIC) vs. SPDR S&P 500 ETF (SPY)
Market Cap
$791.97M
Dividend Yield3.45%
Average Volume (3M)55.78K
Price to Earnings (P/E)21.1
Beta (1Y)0.58
Revenue Growth8.75%
EPS Growth5.17%
CountryUS
Employees3,628
SectorTechnology
Sector Strength83
IndustryInformation Technology Services
Share Statistics
EPS (TTM)0.25
Shares Outstanding49,099,304
10 Day Avg. Volume75,359
30 Day Avg. Volume55,780
Financial Highlights & Ratios
PEG Ratio-1.17
Price to Book (P/B)0.00
Price to Sales (P/S)0.00
P/FCF Ratio18.13
Enterprise Value/Market Cap0.87
Enterprise Value/Revenue0.32
Enterprise Value/Gross Profit4.30
Enterprise Value/Ebitda2.30
Forecast
1Y Price Target
$16.00Price Target Upside-0.99% Downside
Rating ConsensusModerate Buy
Number of Analyst Covering2
Magic Business Overview & Revenue Model
Company DescriptionMagic (MGIC) is a leading provider of private mortgage insurance in the United States. The company plays a crucial role in the housing finance system by enabling borrowers to purchase homes with lower down payments. MGIC primarily operates within the financial services sector, offering mortgage insurance solutions to lenders to help them manage risk and facilitate homeownership for individuals who might not otherwise qualify for a mortgage.
How the Company Makes MoneyMagic (MGIC) generates revenue primarily through the premiums it charges for its mortgage insurance products. The company enters into agreements with mortgage lenders to provide insurance coverage that protects lenders against losses in the event of borrower defaults. The premiums collected from these insurance policies constitute the main revenue stream for MGIC. Additionally, MGIC's earnings can be influenced by factors such as the volume of new insurance written, the persistency of existing insurance policies, and the overall health of the housing market. The company's financial performance is also tied to its ability to effectively manage claims and the investment income generated from the premiums it holds.
Magic Earnings Call Summary
Earnings Call Date:May 21, 2025
(Q1-2025)
| % Change Since: 2.28%|
Next Earnings Date:Aug 13, 2025
Earnings Call Sentiment Neutral
The earnings call highlighted strong revenue growth and expansion in AI services, despite a decline in cash flow and gross margins, and potential operational challenges in the upcoming quarter.Q1-2025 Updates
Positive Updates
Record Revenue Growth
Revenue in the first quarter of 2025 reached a record $147.3 million, up approximately 12.7% from the first quarter of 2024.
Strong Performance in Israel
Israel delivered double-digit year-over-year growth of 17.7% and sequential growth of 11.3%, driven by strong demand for cloud, DevOps, and AI services.
North American Growth with Acquisition
North American revenue increased by approximately 11.1% due to the acquisition of Theoris, Inc.
Generative AI Success
Magic achieved a 62% success rate in genAI projects, significantly outperforming the industry average of 12%.
Improved Financial Health
Financial expenses decreased from $1.5 million to $600,000 due to reduced overall financial debt from $78 million to $56 million.
Negative Updates
Decline in Cash Flow from Operations
Cash flow from operating activities for Q1 2025 was $14.9 million, down from $27.7 million in Q1 2024, due to increased investment in working capital.
Decreased Gross Margin
Non-GAAP gross margin for Q1 2025 was 28.5%, down from 29.3% in the same period last year.
Potential Operational Headwinds in Q2 2025
Due to the timing of the Passover holiday, Q2 will have approximately 4.5 fewer billable days, leading to a reduction of about 7% in billable capacity.
Company Guidance
In the first quarter of 2025, Magic Software Enterprises reported record revenue of $147.3 million, marking a 12.7% increase from the same quarter in 2024. The company's growth was driven by a 17.7% rise in revenue from Israeli operations and an 11.1% increase in North America, partly due to the acquisition of Theoris, Inc. Magic's non-GAAP gross margin was 28.5%, with a breakdown showing 17% related to Software Solutions and 83% to Professional Services. The company's non-GAAP net income rose by 8.3% to $12.2 million, or $0.25 per diluted share. Financial expenses decreased due to a reduction in debt from $78 million to $56 million. Cash flow from operating activities was $14.9 million, reflecting an increased investment in working capital. For the full year 2025, Magic reiterated its revenue guidance of $593 million to $603 million, anticipating a year-over-year growth of 7.3% to 9.1%. The company highlighted potential temporary impacts on the second-quarter operations due to a reduction in billable days caused by the Passover holiday. It also discussed a planned merger with Matrix I.T, expected to be completed in the third quarter of 2025, aiming to enhance its capabilities and market presence.Magic Financial Statement Overview
Summary
Magic's financial statements reveal strong revenue growth, effective cost management, and solid profitability. The balance sheet indicates a healthy leverage position and a strong equity base, while cash flow statements show robust cash generation. Improvements in net profit margins and ROE would further strengthen the financial position.Income Statement
Magic demonstrated consistent revenue growth from $325.63M in 2019 to $552.52M in 2024, with a strong CAGR. The gross profit margin in 2024 is approximately 28.45%, indicating effective cost management. The net profit margin for 2024 is about 6.67%, showing solid profitability. EBIT and EBITDA margins are 11.08% and 14.85%, respectively, reflecting operational efficiency. Overall, the income statement reflects healthy growth and profitability, though there is room for enhancing net margins further.85
Very Positive
Balance Sheet
The debt-to-equity ratio in 2024 stands at 0.31, indicating a moderate leverage position. The equity ratio is 51.31%, showing a strong equity base relative to assets. ROE is approximately 13.30%, which is robust and indicative of effective shareholder value creation. The balance sheet is stable, with prudent debt management and healthy equity levels, though further improvement in ROE would be beneficial.80
Positive
Cash Flow
Free cash flow grew from $40.43M in 2019 to $73.16M in 2024, showcasing strong cash generation capabilities. The operating cash flow to net income ratio is approximately 2.03, indicating efficient conversion of earnings to cash. Free cash flow to net income ratio is 1.98, reflecting strong cash retention. While cash flow performance is commendable, continued focus on maintaining cash flow growth relative to net income will support financial stability.78
Positive
| Breakdown | |||||
| TTM | Dec 2024 | Dec 2023 | Dec 2022 | Dec 2021 | Dec 2020 |
|---|---|---|---|---|---|
| Income Statement | Total Revenue | ||||
| 569.14M | 552.52M | 535.05M | 566.79M | 480.32M | 371.19M | Gross Profit |
| 161.11M | 157.18M | 152.99M | 155.35M | 132.99M | 109.59M | EBIT |
| 46.81M | 61.24M | 57.11M | 61.38M | 51.23M | 40.59M | EBITDA |
| 62.74M | 82.06M | 82.27M | 82.20M | 74.47M | 55.62M | Net Income Common Stockholders |
| 28.17M | 36.88M | 37.03M | 40.47M | 29.77M | 25.19M |
| Balance Sheet | Cash, Cash Equivalents and Short-Term Investments | ||||
| 112.83M | 112.83M | 106.69M | 86.97M | 94.82M | 89.65M | Total Assets |
| 540.33M | 540.33M | 522.41M | 510.97M | 492.05M | 443.32M | Total Debt |
| 86.15M | 86.15M | 108.72M | 79.79M | 62.10M | 49.40M | Net Debt |
| -26.63M | -26.63M | 2.77M | -3.27M | -25.99M | -38.72M | Total Liabilities |
| 239.26M | 239.26M | 231.46M | 205.70M | 185.94M | 149.34M | Stockholders Equity |
| 277.19M | 277.19M | 265.98M | 263.65M | 265.25M | 260.43M |
| Cash Flow | Free Cash Flow | ||||
| 43.68M | 73.16M | 64.19M | 41.86M | 35.86M | 46.22M | Operating Cash Flow |
| 46.82M | 74.83M | 68.99M | 49.52M | 40.49M | 52.30M | Investing Cash Flow |
| -20.89M | -22.61M | -27.62M | -27.34M | -18.45M | -9.60M | Financing Cash Flow |
| -39.72M | -45.15M | -17.29M | -18.35M | -21.29M | -39.65M |
Magic Technical Analysis
Positive
16.16
Price Trends
14.12
Positive
13.34
Positive
12.14
Positive
Market Momentum
0.58
Positive
63.99
Neutral
88.03
Negative
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For MGIC, the sentiment is Positive. The current price of 16.16 is above the 20-day moving average (MA) of 15.56, above the 50-day MA of 14.12, and above the 200-day MA of 12.14, indicating a bullish trend. The MACD of 0.58 indicates Positive momentum. The RSI at 63.99 is Neutral, neither overbought nor oversold. The STOCH value of 88.03 is Negative, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive sentiment for MGIC.
Magic Risk Analysis
Magic disclosed 47 risk factors in its most recent earnings report. Magic reported the most risks in the “Finance & Corporate” category.
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
Latest Risks Added 0 New Risks
Magic Peers Comparison
Overall Rating
UnderperformOutperform
Sector (62)
Financial Indicators
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
80 Outperform | $791.97M | 21.08 | 13.87% | 3.45% | 8.75% | 5.17% | |
71 Outperform | $675.37M | 18.85 | 4.64% | 4.57% | -0.41% | -47.27% | |
62 Neutral | $11.75B | 10.58 | -7.10% | 2.91% | 7.47% | -7.95% | |
54 Neutral | $472.83M | ― | -2.51% | ― | 13.09% | 46.89% | |
51 Neutral | $546.20M | ― | -1.29% | 0.63% | 11.68% | -26360.70% | |
50 Neutral | $739.37M | 20.05 | -0.39% | ― | -19.06% | -104.91% | |
46 Neutral | $635.24M | ― | -67.27% | 17.33% | -7.49% | -575.59% |
* Technology Sector Average
Performance Comparison
MGIC
Magic
16.16
6.48
66.94%
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11.12
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MLAB
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99.79
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XRX
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4.99
-7.79
-60.95%
Glossary
OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.
NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.
UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.
Disclaimer
This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.