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Magic Software (MGIC)
:MGIC
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Magic
(NASDAQ:MGIC)
Rating:73Outperform
Price Target:
$22.50
▲(6.48%Upside)
Positive Factors
Acquisition
The acquisition will bolster Magic’s capabilities in digital transformation for the manufacturing sector, especially in SMB and midsize markets.
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
Billing Days
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.
Market Rating
As a result of the merger, the stock is downgraded to a Market Perform rating.
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
$1.04B
Dividend Yield3.63%
Average Volume (3M)76.38K
Price to Earnings (P/E)27.6
Beta (1Y)0.67
Revenue Growth8.75%
EPS Growth5.17%
CountryUS
Employees3,628
SectorTechnology
Sector Strength94
IndustryInformation Technology Services
Share Statistics
EPS (TTM)0.25
Shares Outstanding49,099,304
10 Day Avg. Volume96,820
30 Day Avg. Volume76,376
Financial Highlights & Ratios
PEG Ratio20.38
Price to Book (P/B)3.80
Price to Sales (P/S)0.00
P/FCF Ratio17.78
Enterprise Value/Market Cap0.96
Enterprise Value/Revenue0.46
Enterprise Value/Gross Profit6.21
Enterprise Value/Ebitda3.11
Forecast
1Y Price Target
$16.00Price Target Upside-24.28% 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 primarily operates in the financial services sector, assisting homebuyers who have less than a 20% down payment with securing mortgages. MGIC's core product offering includes mortgage insurance solutions that protect lenders from default-related losses, thereby facilitating the homeownership process for consumers.
How the Company Makes MoneyMGIC makes money through the collection of insurance premiums from lenders who require coverage for their mortgage loans. These premiums are typically paid monthly or annually, providing the company with a steady stream of revenue. The cost of premiums is determined based on the loan amount, the borrower's creditworthiness, and other risk factors. Additionally, MGIC may engage in strategic partnerships with financial institutions to expand its market reach and enhance its service offerings. Key factors contributing to its earnings include the overall health of the housing market, interest rates, and regulatory changes affecting mortgage insurance requirements.
Magic Earnings Call Summary
Earnings Call Date:May 21, 2025
(Q1-2025)
| % Change Since: 33.73%|
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 showcases strong financial health with steady revenue growth and profitability, supported by a stable balance sheet and effective cash flow management. The company efficiently utilizes its resources, maintaining a healthy balance between debt and equity, and continues to generate substantial cash flows, positioning it well for future growth.Income Statement
Magic has demonstrated consistent revenue growth, with a notable increase of 3.01% in the latest TTM period compared to the previous annual report. The company shows strong profitability, with a gross profit margin of 28.3% and a net profit margin of 6.61% for TTM. Both EBIT and EBITDA margins are healthy at 10.99% and 14.72%, respectively, indicating effective cost management and operational efficiency.85
Very Positive
Balance Sheet
Magic maintains a stable balance sheet with a debt-to-equity ratio of 0.3, reflecting a balanced approach to leverage. The equity ratio of 50.45% demonstrates a solid financial structure with significant equity backing. Return on equity stands at 13.97%, which is a strong indicator of profitability relative to shareholder investments.78
Positive
Cash Flow
The company's cash flow is robust, with a strong operating cash flow to net income ratio of 1.64, indicating effective cash generation from operations. Free cash flow remains healthy at $57.56 million, although there is a 21.31% decrease compared to the previous period. However, the free cash flow to net income ratio of 1.53 still highlights solid cash flow management.82
Very Positive
| Breakdown | Dec 2024 | Dec 2023 | Dec 2022 | Dec 2021 | Dec 2020 |
|---|---|---|---|---|---|
Income Statement | |||||
| Total Revenue | 552.52M | 535.05M | 566.79M | 480.32M | 371.19M |
| Gross Profit | 157.18M | 152.99M | 155.35M | 132.99M | 109.59M |
| EBITDA | 82.06M | 82.27M | 82.20M | 74.47M | 55.62M |
| Net Income | 36.88M | 37.03M | 40.47M | 29.77M | 25.19M |
Balance Sheet | |||||
| Total Assets | 540.33M | 522.41M | 510.97M | 492.05M | 443.32M |
| Cash, Cash Equivalents and Short-Term Investments | 112.83M | 106.69M | 86.97M | 94.82M | 89.65M |
| Total Debt | 86.15M | 108.72M | 79.79M | 62.10M | 49.40M |
| Total Liabilities | 239.26M | 231.46M | 205.70M | 185.94M | 149.34M |
| Stockholders Equity | 277.19M | 265.98M | 263.65M | 265.25M | 260.43M |
Cash Flow | |||||
| Free Cash Flow | 73.16M | 64.19M | 41.86M | 35.86M | 46.22M |
| Operating Cash Flow | 74.83M | 68.99M | 49.52M | 40.49M | 52.30M |
| Investing Cash Flow | -22.61M | -27.62M | -27.34M | -18.45M | -9.60M |
| Financing Cash Flow | -45.15M | -17.29M | -18.35M | -21.27M | -39.65M |
Magic Technical Analysis
Positive
21.13
Price Trends
17.35
Positive
15.15
Positive
13.32
Positive
Market Momentum
1.21
Positive
70.94
Negative
44.26
Neutral
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 21.13 is above the 20-day moving average (MA) of 19.85, above the 50-day MA of 17.35, and above the 200-day MA of 13.32, indicating a bullish trend. The MACD of 1.21 indicates Positive momentum. The RSI at 70.94 is Negative, neither overbought nor oversold. The STOCH value of 44.26 is Neutral, 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 (63)
Financial Indicators
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
83 Outperform | $814.22M | 13.99 | 28.20% | ― | 12.51% | 390.09% | |
74 Outperform | $644.92M | 27.32 | 23.13% | 2.44% | 3.96% | -31.63% | |
73 Outperform | $1.04B | 27.62 | 13.87% | 3.63% | 8.75% | 5.17% | |
72 Outperform | $1.32B | 384.40 | 0.63% | ― | 20.97% | ― | |
66 Neutral | $887.75M | 80.28 | 2.42% | ― | 18.72% | 347.70% | |
63 Neutral | $34.60B | 5.43 | -11.64% | 2.14% | 5.30% | -18.55% | |
56 Neutral | $815.83M | 39.11 | -0.04% | ― | 3.50% | 95.90% |
* Technology Sector Average
Performance Comparison
MGIC
Magic
21.13
10.15
92.44%
HCKT
The Hackett Group
23.32
-0.50
-2.10%
CTLP
Cantaloupe
11.11
3.92
54.52%
GDYN
Grid Dynamics Holdings
10.50
-1.45
-12.13%
PSFE
Paysafe
13.75
-6.75
-32.93%
FLYW
Flywire
10.84
-7.18
-39.84%
Glossary
BuyA stock rated as a "Buy" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock is likely to deliver higher returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
HoldA stock rated as a "Hold" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly compelling nor unfavorable for investment. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
SellA stock rated as a "Sell" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock may deliver lower returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
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.