How to Play PD Stock as PagerDuty Lays Off 15% of Its Staff
PagerDuty (PD) stock is pushing higher on Friday after the digital-operations software firm posted market-beating Q2 results and unveiled a major restructuring designed to improve profitability.
In its earnings release, PD's management said it plans on laying off about 15% of its workforce, primarily from non-customer-facing roles.
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Following today's rally, PagerDuty shares are up more than 5% versus the start of this year.
Investors are treating the layoff announcement as bullish because management said it is intended to prioritize sales and engineering investments while generating significant run-rate savings.
The timing is important because PagerDuty's second-quarter revenue increased just 1% year over year to $124.4 million, highlighting the need for tighter cost control.
Plus, the cost savings could help boost PD's margins, which already stood at an attractive 24% in the second quarter.
In fact, the company raised its full-year FY2027 operating-margin outlook to 25%-26% today.
From a technical perspective, PD shares now sit handily above their major moving averages (MAs), with an RSI in the early 70s indicating intense buying pressure.
PagerDuty's better-than-expected financials and restructuring plans made Cantor Fitzgerald analysts raise their price target on the software stock to $15.
The upwardly revised price target signals potential for another 10% rally from current levels.
In its research note, the investment firm cited the strength in PD's recurring revenue that crossed the $500 million threshold in the second financial quarter, despite an overall revenue growth of about 1% only.
According to its analysts, the combination of sluggish sales growth being offset by solid profitability and cash generation provides investors with a potentially attractive setup.
Heading into Aug. 28, Wall Street had a consensus "Moderate Buy" rating on PagerDuty stock with a mean price target of about $10.79.
However, it's reasonable to assume that upward revisions like that of Cantor Fitzgerald will follow as investors attempt to bake in PD's market-beating quarter and raised operating margin guidance in their estimates.
