JMP Says Buy Splunk Shares Ahead Of Q3 Print

• Splunk Inc SPLK is scheduled to announce its third quarter financial results after the market closes next Thursday.
• According to Estimize, the Street is expecting to see flat year-over-year earnings.
• Ahead of the earnings call, JMP analysts Greg McDowell and Rishi Jaluria reiterated a Market Outperform rating and $81 price target on the shares.

In a report issued Thursday, the experts explained why they are buyers of Splunk’s stock ahead of earning. The firm went over the U.S. Federal Spending data and found two deals with aggregate values of more than $10 million, including what they think could be one of the biggest Federal deals ever for Splunk.

The analysts also checked in with several competitors and partners in the industry, and got the sense that “the spending environment remains very healthy.” Consequently, they raised their third quarter revenue estimate to $162 million, up 40 percent year-over-year, and their non-GAAP EPS estimate to $0.03 from $0.02, versus the Street’s consensus of $0.02.

JMP explained that, stepping back, they like Splunk because of its leadership “in operational intelligence software that helps enterprises make sense of machine data, [because] it addresses a large and expanding TAM, its model is becoming more predictable as it grows its ratable revenue base,” and because they think its robust business momentum will continue. In fact, they believe the company has a long runway to sustain growth rates above 30 percent.

For the full year, the firm now models non-GAAP EPS of $0.17; for next year, they project non-GAAP EPS of $0.40; for the following year (calendar 2017, fiscal 2018) they anticipate non-GAAP EPS of $0.67.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.