Box Reports Q3 Results: Morgan Stanley Awaits Execution, Raymond James Sees Favorable Risk-Reward

Cloud content management and file sharing services company Box Inc BOX reported third-quarter results Wednesday after the market close.

Box posted 21-percent year-over-year revenue growth and a narrower loss in Q3. The company issued upbeat guidance for Q4 as well as fiscal 2019 as a whole. 

The Analysts

Morgan Stanley's Melissa Franchi reiterated an Equal-weight rating on Box shares with a $21 price target.

Raymond James analyst Brian Peterson reiterated an Outperform rating and reduced the price target from $25 to $23.

Solid Quarter, But Morgan Stanley Awaits Solid Execution 

Box's current billings rose 23-percent year-over-year in Q3, "a metric which normalizes for the tough compare of multiyear deals" that Box faced in the quarter, Franchi said in a Thursday note. 

Large deal metrics were solid, with deals valued over $100,000 soaring 43 percent and those valued at over $500,000 more than doubling, the analyst said. 

More than 80 percent of Box's large deals included one add-on product, a 67-percent increase, Franchi said. 

Citing a healthy pipeline of large deals and improved sales force productivity, Box reiterated its outlook for mid-20s billings growth in Q4, the analyst said. 

The company's renewal rate and churn stabilized, and margins continued to improve year-over-year, she said. 

Given Box's below-consensus EPS guidance for fiscal 2020, Morgan Stanley lowered its operating income and free cash flow estimates for the year.

A tactical bounce on a better-than-feared print cannot be ruled out, Franchi said. 

"However, more consistent top-line execution and greater scale in FCF is likely needed for a more material re-rating, keeping us EW on BOX." 

Raymond James Sees Favorable Risk-Reward 

Box' Q3 results were solid, with encouraging progress seen across all key metrics, including ramp in large deal activity and upside to billings and revenue, Raymond James' Peterson said in a Wednesday note.

Reacceleration in growth in fiscal 2020 hinges on large deal execution in Q4, the analyst said. 

The valuation suggests that investors are effectively pricing in a deceleration in growth in 2020 — an overly conservative strategy, in Raymond James' view. 

"While shares may be rangebound ahead of a pivotal Q4 print and FY20 outlook, we see limited downside at current levels, and believe the risk-reward remains quite favorable." 

The Price Action

Box shares have shed roughly 14 percent year-to-date, although they are off 37 percent from the year's closing high of $29.01 on June 20.

The stock was down 3.19 percent at $17.61 at the time of publication Thursday. 

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Photo courtesy of Box.