Credit Suisse Highlights Qualys' 'Higher Qualyty Model'; Upgrades To Outperform

• Shares of Qualys, Inc. QLYS have declined 36.72 percent over the last six months, touching a low of $27.88 on September 1.
• Credit Suisse’ Philip Winslow has upgraded Qualys from Neutral to Outperform, while raising the price target from $35 to $45.
• The company guided to a significant increase in its target operating model at its recent annual Investor Day. Winslow believes that the new expense plan is likely to drive higher EPS and margins in the long term.

Analyst Philip Winslow explained that “Qualys guided to a meaningful uplift in the company's target operating model as compared with both past guidance and current buy- or sell-side expectations.”

Management mentioned that the new five-year plan would lead to operating margins of 42-46 percent on revenue of “at least” $500 million. Winslow believes that this new guidance implies five-year revenue and expense CAGR of 24.7 percent and 15.8-17.4 percent, respectively.

According to the Credit Suisse report, “Qualys could be an attractive acquisition target versus the high valuation of many private and public security vendors.”

Given that 40 percent of the company’s customers have bought only one of its solutions, Winslow expects Qualys to continue to see meaningful cross-sell opportunities among its existing installed based, “which we believe the company will steadily monetize without meaningful incremental expense growth.”

Qualys is also expected to “continue to extend the QualysGuard Cloud Platform's functionality by developing new security solutions,” the report further stated.

In addition, Winslow believes that the company is well positioned to “defend and expand its leadership in the growing Security-as-a-Service market.”

The long-term EPS and free cash flow estimates have been significantly raised, based on Qualys’ revised long term expense plan.