Carbonite Is The 'Little Guy' Data Protection Company To Buy, Stifel Says

Carbonite Inc CARB, a "little guy" data protection company, has shown over the past few years a shift in its business strategy which warrants a bullish stance on the stock, according to Stifel.

The Analyst

Stifel's Brad Reback initiated coverage of Carbonite with a Buy rating and $44 price target.

The Thesis

Carbonite's roots traces to serving the consumer market. Over the past few years, however, a new management team shifted its strategy to address the needs of small and medium-sized businesses, Reback said in a note. The up-market shift gives the company exposure to the Data Protection-as-a-Service market, which can double in size over the next four years to more than $10 billion.

Encouragingly, the company is not only well positioned to tackle the growing market but recent portfolio additions through recent M&A deals creates cross-selling and up-selling opportunities to drive further growth, the analyst said. In fact, the average customer today has only purchased on of the company's five main product offerings.

Carbonite's new target market is more preferable to the consumer market given a "much higher" average initial contract value and superior retention characteristics, the analyst said. As a result, the company's revenue stream is more visible and has already resulted in around 1,000 basis points of operating margin expansion with more gains to come moving forward.

Price Action

Shares of Carbonite were trading marginally higher at $39.55 Monday afternoon.

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