Brian White: Time For Splunk To Break Out Of Funk Once And For All

• A couple of weeks ago, Splunk Inc SPLK reported its third quarter financial results, beating estimates and delivering its best performance in nearly two years.
• However, since the day after the report, the company’s stock has fallen more than 3 percent, opening an attractive investment opportunity in what Drexel Hamilton analyst Brian White has defined as “one of the best pure plays on the Big Data trend.”
• Consequently, the expert reiterated a Buy rating and $80 price target on the stock.

Following a substantial earnings and revenue beat, Drexel Hamilton’s Brian Whine reiterated his Buy rating and $80 price target on shares of Splunk, noting that this is an opportunity to invest in “one of the best pure plays on the Big Data trend.” The experts think the company will “continue to ride the Big Data wave into CY:16 with larger deal sizes, expanding use cases, increased penetration overseas, continued momentum in the security market and the benefits of an expanding portfolio.”

Despite a big revenue beat and strong guidance, Splunk’s stock lost more than 3 percent since the last earnings call. Moreover, the report pointed out, the shares lost more than 12 percent since the end of 2013, even though the Street’s revenue estimates for the full –current- fiscal year (fiscal 2016) have surged by approximately 30 percent since that moment. Furthermore, Drexel Hamilton is modeling sales of $650.5 million for the year -- up 44 percent year-over-year.

In the analysts’ view, “Splunk is a highly coveted asset in the Big Data world and if the stock continues to underperform fundamental trends, larger IT vendors could become interested in acquiring the company.”

Finally, the experts see several growth drivers ahead for the company, including a growing portfolio, high adoption levels for security use cases, an enlarging ecosystem, ameliorated pricing options and an increasing presence in international markets. Specifically, Whine and his team believe “the unlimited licensing for enterprise-wide deployment under Enterprise Adoption Agreements (EAA) will eliminate barriers and drive broader adoption in the market.” Lastly, they think the Big Trend remains in its early stages and, similar to cloud computing in about 6 or 7 years ago, providing a robust secular trend for the company to grow going forward.

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