Morgan Stanley Raises Target On Splunk From $53 To $58

Splunk Inc SPLK reported robust 1Q17 results, beating expectations. Morgan Stanley’s Keith Weiss maintained an Overweight rating for the company, while raising the price target from $53 to $58. The analyst commented that the company has “compelling drivers ahead,” including new product ramps.

Balance Between Upside And Investment

Splunk generated 48 percent y/y billings growth in 1Q and maintained “a balance between margin upside and continued investments for its large opportunity,” analyst Keith Weiss said.

While the company sustained +40 percent license and billings growth, margin expansion and expansion of customer adds and customer usage, it continued to invest in its product development and distribution. This should enable Splunk to grow the Platform story, which is likely to reward investors in the long term, Weiss commented.

Splunk’s ecosystem of distribution partners is growing and management expects the Accenture partnership to ramp in F2H17 through FY18.

Upside To Forecasts

Management raised revenue guidance for FY17 by $14M and reiterated its FCF margin target of 23 percent. The analyst mentioned that this means consensus estimates would move higher. He added that the outlook of ~30 percent revenue growth from Q2 to Q4 is likely to prove conservative.

The current share price undervalues the company’s “defensible market position and strong secular tailwinds around security and big data,” Weiss added.