Morgan Stanley Raises Splunk Price Target To $74

Morgan Stanley remains Overweight on Splunk Inc SPLK shares and raised the price target by 28 percent to $74, saying that the company's second half outlook could prove conservative.

"Compelling use cases, expanding delivery/pricing models and growing productive sales capacity should showcase Splunk's evolving Platform story in FQ2 and beyond," analyst Keith Weiss wrote in a note.

"We believe the outlook of ~30 percent revenue growth from Q2-Q4 will once again prove conservative, given continued investments in the business, an expanding partner network (Accenture, Cloud vendors), and a stabilizing ratable mix," Weiss noted.

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Among the growth drivers, the analyst highlighted Splunk Cloud whose orders more than doubled YoY over the past few quarters. Weiss expects Splunk Cloud billings moving from 3 percent of total billings in FY16 to about 5 percent in FY17, contributing 7 percent of billings growth in FY17.

Further, Splunk's new premium applications, add-ons and integrations over the past year should drive additional usage, while the company would benefit from growing ecosystem of distribution partners.

"Taken together, we see a high probability of top-line growth sustaining 40+ percent with material incremental margins– continuation of these trends through FY17 should drive SPLK higher," Weiss added.

At the time of writing, shares of Splunk rose 2.53 percent to $61.66. The revised price target of $74 implies a potential upside of 23 percent over Friday's close of $60.14.

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