Why Rapid7 Could Have More Upside For Cybersecurity Investors
Shares of Rapid7 Inc (NASDAQ: RPD), a security data and analytics provider began trading in mid-July and shares have soared nearly 54 percent from its IPO price.
Several of Wall Street's leading experts initiated coverage of the issue on Tuesday.
William Blair: ‘Attractive' Market Opportunity
Jonathan Ho of William Blair initiated coverage of Rapid7 with an Outperform rating and no assigned price target.
According to Ho, Rapid7 is operating in a "large" and "attractive" market as IDC data suggests the market for vulnerability management and scanning solutions totals $4.9 billion and is growing at a slightly less than 10 percent rate.
Ho added that Rapid7's growth will be driven by market share gains, cross and up-selling opportunities, international geographic expansion which will all be helped by the overall growth of the market. In fact, the analyst pointed out that the company has been investing in building an "enterprise-oriented" sales force with a global distribution market that could sustain organic revenue growth of 20 percent or better over the coming years.
Pacific Crest: Company Is ‘Leading The Charge'
Rob Owens of Pacific Crest initiated coverage of Rapid7 with an Overweight rating and $28 price target.
Owens commented on the company, noting it is "leading the charge" within the risk-based security sector. In fact, the majority of the company's revenue is "predictable" and highly visible.
Owens also noted that Rapid7 has expanded its data collection, information aggregation and monitoring capabilities to extend into the security analytics market.
Barclays: Valuation Concerns
Saket Kalia of Barclays initiated coverage of Rapid7 with an Equal Weight rating and $24 price target.
Kalia noted that Rapid7 could show 20 to 30 percent revenue growth through fiscal 2017 as the company will gain share in core markets while expanding into new markets. The analyst added that the vulnerability management market (a proxy for the threat exposure management market) is valued at $1.3 billion and growing at 15 to 18 percent through 2018. Meanwhile, the company's total addressable market for its UserInsight and Incident Response services are valued at $7 billion to $12 billion.
However, the analyst suggested that investors value the company directly with Qualys Inc (NASDAQ: QLYS) which is trading at approximately 6x fiscal 2016 EV/S estimates. As such, Kalia recommended investors wait for a better entry before buying the stock.
Morgan Stanley: Upside Already Priced In
Melissa Gorham of Morgan Stanley initiated coverage of Rapid7 with an Equal Weight rating and $23 price target.
According to Gorham, the security market is shifting away from a "block and protect" mentality towards solutions that lower an enterprise's risk profile and speed the time to detection which happens to be Rapid7's core key value proposition.
With that said, Gorham felt it necessary to point out her $23 price target already assumes "strong" execution in core markets that will drive customer base growth at a 22.2 percent compounded annual growth rate through 2020 at which point total revenue will reach $250 million and the company sees break even operating margin. In addition, a $23 price target assumes a roughly 7x EV/CY16 sales, a multiple that is in-line with its peer group.
Latest Ratings for QLYS
|Jan 2017||Wells Fargo||Initiates Coverage On||Market Perform|
|Nov 2016||JP Morgan||Upgrades||Underweight||Neutral|
|Oct 2016||DA Davidson||Upgrades||Neutral||Buy|
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