Data Analytics Firm Splunk Has Discounted Valuation, Takeout Appeal, Argus Says In Upgrade

Splunk Inc SPLK's stock is up nearly 70 percent over the past year, but is still trading at a discount to its peers, according to Argus.

The Analyst

Argus' Joseph Bonner upgraded Splunk's stock rating from Hold to Buy with a $120 price target.

The Thesis

Splunk is considered to be an early-stage data analytics company with a strong technology base, and it has evolved from its original focus of IT operations management, Bonner said in a Thursday note. (See the analyst's track record here.)

The company's future success will depend on management's execution and its ability to ramp software sales and win market share without negatively impacting margins or operating at losses, the analyst said. 

The data analytics company deserves some credit for its operations during its transition, Bonner said.

"While revenue has slowed from the super-fast growth seen several years ago, margin is also expanding as the company gains scale."

Splunk is "exactly the kind of company" that would be an attractive acquisition target for a larger enterprise software firm, Bonner said. 

Splunk's stock trades at a 13-percent discount to the peer average EV/revenue multiple on a forward basis, according to Argus. This discount is unjustified and should reverse if, at the very least, the company's revenue "slows more gradually than investors expect," the analyst said. 

Price Action

Splunk shares were up 1.38 percent at $107.11 at the time of publication Thursday morning. 

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Photo courtesy of Splunk.