Canaccord Says Splunk Poised For A Break Out

Splunk Inc SPLK reported a strong quarter, with revenue, operating margins and FCF ahead of expectations. Canaccord Genuity's Richard Davis reiterated a Buy rating for the company, while raising the price target from $60 to $65. The analyst believes the shares are poised for a break out.

Splunk reported its quarterly revenue at $186.0M and non-GAAP operating loss at ($1.4M), better than the estimates of $12.0M and $0.4M, respectively.

The company generated total revenue growth of 48 percent y/y, with license revenue growth of 41 percent y/y and maintenance & services growing 58 percent. Operating margins stood at (0.7) percent, better than the expected (1) percent. FCF came in at $32.0M.

Splunk raised its full-year revenue guidance by $16M to $896M at the high end. Despite the revenue increase, the non-GAAP operating margin guide was unchanged at 5 percent, representing a 120 bps y/y improvement.

Upside To Shares

Analyst Richard Davis believes the following would lend upside to Splunk’s shares:

1. The company is the leader in a relatively less competitive space
2. Splunk’s security push is likely to enable the company to generate revenue growth above 30 percent
3. Splunk’s EV/FCF is less than 1.0x the company’s growth rate

Following pressure on the shares since late September 2014, the multiple has “compressed to an attractive level,” Davis wrote, while adding that Splunk was among the favorite mid-cap growth names.