TipRanks Smart Value #21: Strategic Value

Shrilekha Pethe on July 29, 2025

Dear Investors,

Welcome to the 21^st edition of our recently launched TipRanks Smart Value Newsletter!

This Week’s Top Value Pick: Roper Technologies (ROP)

Roper Technologies (ROP) is a diversified technology company specializing in niche market software and engineered solutions for critical applications in healthcare, logistics, energy, food, and education. Its decentralized operating model and focus on high-margin, subscription-based businesses support consistent growth and strong free cash flow. Known for disciplined capital deployment and strategic acquisitions, Roper enables customers to streamline operations, ensure compliance, and make informed decisions in complex environments.

Software Shift

Roper Technologies began in 1981 as a manufacturer of industrial equipment. Roper gradually reinvented itself as a technology-focused enterprise. Beginning in the early 2000s, it reallocated capital away from traditional manufacturing to acquire scalable, high-retention software businesses serving specialized markets. This transformation gained momentum through the 2010s, with leadership doubling down on recurring revenue and workflow automation solutions that offer durable competitive advantages.

Foundational moves began in 2015 with the acquisitions of Aderant, a legal software provider, and Atlas Medical, a healthcare IT firm. This was followed in 2016 by Deltek, a leader in ERP software for government contractors; ConstructConnect, a construction collaboration platform; and CliniSys Group, which provides laboratory information systems. These acquisitions deepened Roper’s footprint in software-as-a-service (SaaS) and workflow automation across specialized industries.

A key milestone came in 2020 with the $5.4 billion acquisition of Vertafore, a cloud-based insurance management software leader. The deal significantly bolstered Roper’s recurring revenue and expanded its presence in insurance technology.

Between 2021 and 2024, Roper deployed nearly $9.95 billion in capital toward high-quality software acquisitions, solidifying its identity as a premier compounder in enterprise software and mission-critical tech. In 2023, it acquired Syntellis Performance Solutions, enhancing its analytics and financial performance offerings for clients in healthcare, education, and finance.

In 2024, the company expanded further into education technology with the acquisitions of Procare Solutions, a childcare management software provider, and Transact Campus, a campus engagement and payments platform. Both added recurring SaaS revenue and high-retention client bases.

At the same time, Roper streamlined its operations by divesting non-core, industrial-facing assets. From 2021 to 2022, it exited businesses like TransCore and Zetec and sold a majority stake in its Process Technologies and Measurement & Analytical Solutions units, now operated as Indicor. These divestitures aligned Roper’s portfolio with its software-driven strategy.

In 2025, the momentum continued. In March, Roper announced the $1.65 billion acquisition of CentralReach, a fast-growing, cloud-based platform for autism care and applied behavior analysis, expected to grow organically at over 20%. In Q2, it completed the $800 million acquisition of Subsplash, an AI-enabled digital engagement platform serving faith-based organizations. These deals further diversified Roper’s recurring revenue and strengthened its leadership in niche vertical software.

Together, these acquisitions redefined Roper’s business model by enhancing growth, improving margins, and creating a more stable, predictable earnings base. The company emerged as a premier software and technology compounder with a durable competitive position.

Today, Roper has a market capitalization of around $60 billion, with trailing twelve months’ (TTM) revenues approaching $8 billion, and is ranked #519 on the 2025 Fortune 500 list.

Software Stronghold

Roper Technologies follows a broad-based business model built around specialized software, data analytics, and technology-enabled products that serve critical needs in niche markets. The company’s operations span three segments – Application Software, Network Software, and Technology-Enabled Products – and are unified by a decentralized structure that empowers individual business units. At the same time, the corporate center focuses on disciplined capital allocation and operational efficiency. This model has fueled consistent growth in earnings and free cash flow, driven by recurring revenues, targeted acquisitions, and leadership in niche markets.

Roper primarily earns revenue by delivering mission-critical solutions to specialized sectors including healthcare, education, legal services, insurance, government contracting, and regulated industries. These offerings are deeply embedded in customer workflows, enabling long-term relationships and high switching costs. Over 75% of Roper’s total revenue is generated by its Application and Network Software segment, which provides cloud-based platforms and subscription-based services with high retention rates.

Roper’s business portfolio includes well-known brands such as Deltek, Strata, Vertafore, and CentralReach – category leaders with strong competitive moats.

In Q2 2025, Application Software revenue reached approximately $1.1 billion, up 17% year-over-year, with 6% organic growth and EBITDA margins of 42.9%. Deltek saw a mid-single-digit revenue growth as clients migrated to cloud solutions and adopted its AI-powered Costpoint suite. Aderant posted record bookings in legal tech, boosted by rapid AI adoption and strong demand for cloud migration, and expanding market share, now accounting for over half of new deployments among large law firms. Its end-to-end platform streamlines complex legal operations from billing to collections.

Vertafore maintained steady annual recurring revenue (ARR)¹ growth and strong client retention in the property and casualty (P&C) insurance sector, while PowerPlan, which serves regulated infrastructure clients, achieved near 100% retention and expanded through SaaS migrations in the infrastructure sector. Other notable performers included Procare Solutions and Transact Campus in education, and CentralReach, which posted record wins in special needs care software with a 70% enterprise win rate.

ProCare provides cloud-based management and administrative software to childcare providers and similar organizations. This business initially underperformed after its acquisition, delivering 10% organic growth versus a 15% target in its first year post-acquisition due to leadership issues. Roper responded by replacing key executives and streamlining operations, with improvements in customer support helping to reposition the business for a growth recovery in the mid-teens during H2 2025. Its payment attach rate² now stands at 75%, with room for further improvement.

Looking ahead, Roper expects mid-single-digit organic growth for the second half of 2025 for the application software business, supported by resilient demand for vertical SaaS, ongoing cloud transitions, and increasing adoption of AI-powered features across its portfolio.

Roper’s Network Software segment, which includes platforms like ConstructConnect (construction), DAT and Loadlink (freight), Foundry (visual effects), and SoftWriters (pharmacy management), posted 6% revenue growth (5% organic) in Q2, with EBITDA margins climbing to 54.6%. DAT drove growth through higher revenue per user and recent acquisitions like Loadlink and Alco, which enhanced its logistics and factoring³ capabilities. ConstructConnect saw strong bookings, aided by AI-driven estimating and bidding tools. Foundry rebounded from Hollywood strike-related headwinds with the growing adoption of its Nuke Stage platform. Healthcare-focused solutions – MHA, SHP, and SoftWriters – also saw steady demand, driven by efficiency and compliance needs in alternate site care.

Looking ahead, Roper forecasts mid-single-digit organic growth for the Network Software segment in the second half of 2025, supported by AI adoption, continued integration of recent acquisitions, and sustained demand for essential, high-margin industry software.

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1- Annual recurring revenue (ARR) refers to the portion of a company’s revenue that is expected to be repeated every year from ongoing contracts, subscriptions, or service agreements.

2-Payment attach rate refers to the percentage of core software customers who also adopt and use the company’s integrated payments solution as part of their overall service bundle.

3-A factoring provider in logistics is a specialized financial company that helps logistics and transportation businesses improve their cash flow by purchasing their outstanding invoices (accounts receivable) at a discount.

Hardware Edge

Complementing these software-driven segments is Roper’s Technology-Enabled Products (TEP) business offering durable, high-margin solutions that deepen customer engagement while diversifying the company’s revenue base. The TEP segment complements Roper’s software base with niche, high-margin products. This segment includes specialized hardware and embedded software, largely used in healthcare and utility infrastructure. While more cyclical than software, this segment complements the portfolio with high-margin products that are difficult to replicate and often tied to recurring consumables or service contracts.

In Q2 2025, TEP revenue rose 10% with 9% organic growth, and EBITDA margins reached 36.7%. Neptune, which specializes in water measurement products and data collection systems for utilities, led with strong demand for ultrasonic water meters. Verathon posted robust results from its single-use medical devices, while Northern Digital gained traction with precision tools for Original Equipment Manufacturers (OEMs) used in cardiac and orthopedic surgery. Other businesses – FMI, Anionics, IPA, and RF Ideas – added to growth through industrial and security solutions. Roper anticipates high single-digit organic growth for TEP in the second half, with a particularly strong Q3.

A key recent move was Roper’s acquisition of Subsplash, expected to contribute $115 million in revenue and $36 million in EBITDA over 12 months ending Q3 2026. Targeting the faith-based engagement software market, Subsplash operates in a $2.5 billion U.S. total addressable market (TAM) with high-teens organic revenue and high-20s EBITDA growth potential projected over the next 3–5 years. The acquisition, financed through Roper’s credit facility, will be integrated into the Network Software segment and is expected to contribute 15 basis points to organic growth over time. Subsplash also supports Roper’s AI strategy, with its automation capabilities enhancing digital engagement and customer value.

AI is playing an increasing role across Roper’s portfolio, with roughly 25 AI-enabled products in the market or under development. Early use cases have already yielded internal productivity gains, such as a 30% boost in R&D efficiency at one major software unit. While AI-related revenues remain modest today, Roper sees the technology as a long-term accelerator of growth and TAM expansion. By enhancing product value and expanding addressable markets, AI is expected to accelerate bookings and revenue growth heading into 2026.

Enterprise software bookings rose in the high teens, led by resilient demand in sectors like education, legal, healthcare, and insurance. Aderant led the way with record bookings, while Frontline saw softer results. Despite mixed conditions, Deltek’s pipeline remains healthy, and management expects improvement as funding picks up, particularly in defense, from the One Big Beautiful Bill (OBBB),⁴ which begins to support federal contractor budgets, especially in defense.

The OBBB’s broader impact has been neutral so far. Healthcare and medical tech product units remain steady, with Medicaid roll-offs⁵ offset by demand for return on investment (ROI)-driven solutions. In education, Transact may benefit from higher education reforms, and CentralReach remains stable due to Medicare-indexed reimbursements.

With a diversified portfolio of software and technology assets, robust recurring revenues, and a proven acquisition framework, Roper is well-positioned for continued earnings and free cash flow growth across economic cycles.

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4- Trump’s One Big Beautiful Bill is a large, complex law that reshapes tax, social welfare, and defense spending with a focus on extending his 2017 tax cuts permanently, reducing federal assistance programs, increasing defense and border security funding, and promoting traditional energy sources over renewables.

5- Medicaid roll-off in the context of Roper Technologies’ healthcare software services refers to the process where individuals lose Medicaid health insurance coverage—often due to changes in eligibility or income—and transition to other coverage types, such as commercial plans or Affordable Care Act (ACA) marketplace insurance.

Growth Snapshot

Roper Technologies has delivered strong and consistent financial performance in recent years, reflecting the success of its long-term strategy to pivot toward recurring revenue software businesses. Over the past five years, the company’s revenue has grown at a CAGR of 8.1%, driven by organic expansion in vertical software and the integration of acquisitions such as Vertafore, Deltek, Syntellis, and Procare Solutions. However, earnings per share declined by 1.4% over the same period, due to weakness in certain legacy or divested business lines, which partially offset gains from its core software portfolio.

In the second quarter of 2025, Roper reported revenue of $1.94 billion, up 13% year-over-year, exceeding Wall Street estimates. Organic growth accounted for 7% of the increase, with recent acquisitions contributing an additional 6%. Adjusted EPS rose 9% to $4.87, beating analyst expectations. Adjusted EBITDA reached $775 million, up 12% from the prior year, with margins remaining strong at approximately 40%.

The company ended the quarter with a net debt-to-EBITDA ratio of 2.9x. It held $242 million in cash and had drawn $1.4 billion from its $3.5 billion revolving credit facility to fund the acquisition of Subsplash. Although the leverage ratio is above the software sector median of 1.14x, Roper maintains a solid investment-grade credit rating of BBB+ from S&P Global, supported by its stable cash flow and disciplined capital allocation.

Looking ahead, Roper raised its FY25 guidance, now expecting total revenue growth of approximately 13%, with organic revenue growth in the 6% to 7% range. Adjusted EPS is forecast to reach $19.98 at the midpoint, up from the prior guidance of $19.93. This includes the impact of the recently announced acquisition of Subsplash. For the third quarter, the company expects diluted EPS of $5.10 at the midpoint. Management attributes its positive outlook to ongoing demand for mission-critical, AI-enhanced software solutions and a strong pipeline of high-quality acquisition targets.

Value Catalyst

Roper Technologies has maintained a long-standing commitment to delivering shareholder value, supported by consistent dividend growth, robust free cash flow generation, and disciplined capital allocation. The company has increased its dividend for 32 consecutive years, reflecting its financial strength and steady earnings profile. Over the past decade, Roper has grown its payout at an annual rate of 13.1%. Its most recent quarterly dividend stands at $0.83 per share, yielding 0.58%, slightly below the technology sector average of 0.59%. With a payout ratio of around 24%, Roper maintains a conservative approach, preserving flexibility for reinvestment and acquisitions while rewarding shareholders.

Free cash flow remains one of Roper’s core financial strengths. Its proven approach of acquiring cash-generative, niche software firms, with efficient reinvestment and pricing power, continues to deliver robust operating leverage.

Over the past three years, Roper’s free cash flow has grown at a CAGR of 16%. In the second quarter of 2025, free cash flow reached $403 million, with a trailing twelve-month FCF margin of 31%. Adjusted operating cash flow also increased 13% year-over-year to $434 million, reflecting strength across all business segments. The company’s return on equity (ROE) and return on assets (ROA) rank in the top 40% and 30% of the industry, respectively, underscoring the company’s efficient use of capital.

Roper’s share price has been fairly stagnant during the past year, despite strong earnings results, continued growth in its high-margin software portfolio, and momentum from AI-enabled product innovation. The company has also raised guidance, delivered solid cash generation, and implemented successful acquisitions, such as Subsplash.

Roper currently trades at a premium to the software sector median based on non-GAAP trailing and forward P/E ratios. However, it is currently priced at more than a 5% discount to its five-year average on these metrics. Similarly, while its trailing EV/EBITDA and price-to-cash flow ratios are above the sector median, Roper trades at more than a 5% and 20% discount, respectively, to its historical averages. This suggests that while the stock commands a sector premium, it remains attractively priced on a historical basis.

Roper Technologies operates at the intersection of industrial and software innovation, delivering specialized solutions through technology-driven platforms, making it more of a tech compounder than a traditional industrial company.

Relative to peers in both the industrial and software sectors, such as Cintas and Workday, Roper appears undervalued based on its non-GAAP trailing and forward P/E ratios. On forward PEG, EV/EBITDA, and price/cash flow metrics, Roper falls within the low to moderate valuation range, compared to its peers in the industrial and software sectors, reinforcing its appeal to value-conscious investors.

Analysts remain constructive on the stock, with consensus estimates suggesting upside potential of around 15%, and some analysts forecasting as much as 26%. Analysts point to Roper’s strong financial performance, continued growth in software, and its strategic focus on high-value verticals as key drivers. A discounted cash flow (DCF) analysis supports this view, indicating that Roper may be undervalued by roughly 24%, offering meaningful upside for long-term investors seeking quality, cash-generating compounders.

Investing Takeaway

Roper Technologies presents a compelling opportunity for value-focused investors seeking consistent compounding from a high-quality, software-centric business. Through strategic acquisitions and a disciplined shift from industrial manufacturing to vertical market software, Roper has built a resilient model supported by strong free cash flow, operational efficiency, and durable competitive advantages. Its recurring revenue base, conservative payout policy, and focus on high-return reinvestment underpin long-term shareholder value creation. Despite trading at a premium to sector averages, Roper remains attractively valued relative to its own historical multiples and many industry peers. With steady earnings growth, robust margins, and growing adoption of AI across its portfolio, the company is well-positioned to sustain strong performance through economic cycles.

Category: Smart Value