Analyst: Carbon Black Holds 'Compelling' Market Opportunity, But Has Balanced Valuation

Cybersecurity provider Carbon Black Inc CBLK is well-positioned to target growing enterprise demand to protect their platforms, but that isn't reason enough to be aggressive on the stock, according to Morgan Stanley.

The Analyst

Morgan Stanley's Melissa Franchi initiated coverage of Carbon Black's stock with an Equal-weight rating and $23 price target.

The Thesis

Carbon Black's market opportunity is "particularly compelling" for three key reasons, Franchi said in the initiation note. (See the analyst's track record here.)

They are:

• The endpoint security segment is not only a $6-billion market, but prime for displacement by companies like Carbon Black.
• Vendors like Carbon Black offer superior antivirus solutions compared to legacy companies.
• The company is able to offer a broader product portfolio that addresses the full lifecycle of endpoint protection.

Carbon Black is likely to increase its market share in the endpoint security market at the expense of legacy players and can sustain a 20-percent growth rate through 2021, the analyst said. Yet Carbon Black's stock is trading at 6.9x 2019E revenue and 0.3x the growth-adjusted multiple, which is nearly in-line with the 7.2x and 0.32x average multiples for security names. The company is operating with a negative 32 percent operating margin, which is below its security peers at positive 6 percent, Franchi said. 

The cyber security company's stock is "appropriately valued" today for growth over the coming years, according to Morgan Stanley. 

Price Action

Carbon Black shares were up 3.24 percent at the time of publication Tuesday morning. 

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