Morgan Stanley Downgrades Imperva To Underweight

Imperva Inc IMPV shares have gained about 30 percent from their February lows. Morgan Stanley’s Melissa Gorham downgraded the rating for the company from Equal-weight to Underweight, while maintaining the price target at $36. The analyst commented that Imperva’s path to an FCF growth was now “less certain.”

Analyst Melissa Gorham Imperva’s shares to underperform in 2016 due to decelerating revenue growth, limited operating margin expansion and long-term secular challenges.

Although shares have risen over the past year backed by easy comps, benefits from an improved sales structure as well as management, and a favorable security demand environment. Gorham said, however, that these tailwinds could subside in 2016.

Limited Near-Term Upside

Billing comps are more than 25 percentage points more difficult in 2016, which is why Imperva “faces a steeper slope” this year, against “a more "normalized" security spending environment, heightened competition and high financial services exposure,” Gorham wrote.

Checks have been mixed, suggesting limited upside to top-line estimates, even though the MS billings estimate is 3.5 percent below consensus expectations. “At the same time, a lower magnitude of revenue beat should translate into less upside to margins, particularly as Imperva invests in S&M/R&D to ramp its newer solutions, such as Incapsula and Skyfence,” the analyst mentioned.

The conservative top-line estimate, reflecting 28 percent billings growth in 2016 versus consensus of 32percent, and the FCF margin estimate of 6.0 percent versus consensus of 7.5 percent, result in the FCF estimate being 20 percent below current consensus expectations.