11:37 AM EDT, 07/14/2025 (MT Newswires) -- Manhattan Associates ( MANH ) faces downside risk from a weaker macro environment and significant exposure to discretionary services work, Morgan Stanley said in a note emailed Monday.

The firm said Manhattan Associates ( MANH ) is well-positioned to secure market share in the sector's $12 billion total addressable market, supported by its best-in-class cloud solutions.

However, near-term macro headwinds have slowed the company's current remaining performance obligation bookings to 7% year over year, presenting downside risk to 2026 cloud revenue estimates.

Further downside risk could come from the company's reliance on discretionary professional services, which make up about 50% of total revenue. Morgan Stanley's recent CIO survey indicated muted growth and increased discounting in IT services spending, suggesting the potential for softer demand.

"While management sounds confident in a recovery in the services business, it is structurally a more discretionary part of IT budgets," Morgan Stanley said.

The firm also noted that Manhattan Associates' ( MANH ) shares trade at a premium valuation of around 39 times free cash flow, which may already reflect optimistic expectations and underappreciate the risk of downward estimate revisions.

Morgan Stanley initiated coverage on Manhattan Associates ( MANH ) with an underweight rating and a $190 price target.

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