Atlassian A Buy At Summit Redstone On Highly Differentiated Software Model

Atlassian is an enterprise software company. The company's products include JIRA for team planning and project management, Confluence for team content creation and sharing, and HipChat for team messaging and communications.

"We believe this company continues to invest in its competitive advantages as it grows share especially from larger competitors who are not as focused," analyst Jonathan Kees wrote in a note.

The analyst noted that Atlassian is gaining share from larger peers like International Business Machines Corp. IBM, Microsoft Corporation MSFT and HP Inc HPQ as they are not as focused as Atlassian on team collaboration solutions and communications.

Related Link: BTIG Research Downgraded Atlassian To Neutral On Valuation

"While overall revenue outlook is for GDP growth at best for IBM, we know from our sources that IBM Rational has been declining double digits for the last several years. While not declining as much, Microsoft's TFS's growth has been anemic at best and expectations are for continued tepid revenue performance," Kees highlighted.

Moreover, Kees finds Atlassian's FY 2017 revenue guidance of 30 percent growth year-over-year at the midpoint, or $597 million, more acceptable when compared to smaller and younger companies like Zendesk of 48 percent growth for 2016 and CA (Rally) of expectations for double-digit revenue contribution.

Kees said the Atlassian's goal of reaching 20 percent margins within the next five years as achievable given top-line growth.

The analyst, who noted that the company's competitive advantages remain viable for the immediate future, expects FY17 EPS of $0.32 on revenue of $597.6 million.

In addition, the $35 price target is based on 8.9x EV to FY2018 revenues of $769 million, and represents a potential upside of 15 percent from Monday's close of $30.33.

Full ratings data available on Benzinga Pro.