When Zendesk Stock Hits Low-$20s, This Analyst Will Get Interested

Shares of Zendesk Inc ZEN rallied more than 17 percent on strong December quarter print and Canaccord Genuity maintains its Buy rating given the results showed upside on revenue, operating margins, EPS, FCF and billings.

Quarterly Print

The fourth-quarter results were a welcome relief for investors after the third quarter showed some signs of weakness.

“[P]ositive commentary around cross-sell momentum beginning to show in the quarter; guidance reflects continued strong growth (35%) and operating margin gains (250 bps) as the company works toward its reiterated goal of $18 in revenue in 2020,” analyst Richard Davis wrote in a note.

Among the positives MRR from Enterprise (100+ seats) rose to 34 percent of the mix, from 32 percent a year-ago and 33 percent last quarter.

Dollar-based net expansion was again strong at 115 percent and management commented that it should remain in the 110-120 percent range for the next several quarters. Further, the company sees strong revenues with in-line margins.

The company guided 2017 full-year revenue of $415 million to $425 million, implying 33 percent to 36 percent growth, and came in above expectations of $410.4 million.

Moving Forward

Davis said the stock is directionally headed higher — most likely to the high $20s or higher as 2018 comes into view.

“Zendesk has a quality franchise so while the stock is OK to buy at current levels, we get particularly interested in this name when the stock dips to the low $20s,” Davis highlighted.

At last check, shares of Zendesk were up 15.46 percent to $28.30. Davis has a price target of $32.