BofA: Cornerstone OnDemand To Benefit From Improved Execution, Operational Efficiency

Valuation of cloud-based learning and talent management solutions provider Cornerstone OnDemand, Inc. CSOD isn't reflecting growth and margin potential, according to an analyst at Bank of America Merrill Lynch.

The Analyst

BofA analyst Brad Sills upgraded Cornerstone OnDemand from Neutral to Buy and increased his price target from $42 to $48.

The Thesis

The recent changes to sales leadership and ownership could improve sales execution, Sills said in a Monday note, quoting recent channel feedback. The company stands to achieve ‘rule of 40' target, including revenue growth and free cash flow margin, helped by its focus on reducing professionals services mix and improving operational efficiency, the analyst said.

Feedback from key global SI partners indicates improvement in deal activity in the fourth quarter, thanks to improving execution, reinvestment of expected tax savings into HR technology and favorable competitive environment, Sills said.

BofA said the softness in the core enterprise segment was more than offset by strategic and mid-market strength, with particular strength in Europe.

"Pipelines for Q1 and 2018 appear to be healthy, with broad strength across enterprise, strategic and mid market," the note said.

BofA expects the company to reaffirm expectations for low/mid-teens subscription revenue growth in 2018. According to the firm, the significant discount at which shares are trading with respect to the SaaS software group suggested that shares don't reflect improving growth and margin potential.

The Price Action

Cornerstone OnDemand shares are up 1.2 percent over the past year. At time of writing, the stock were up  2.2 percent at $41.01.

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