Splunk Q4 Preview: Expect EPS Beat, Yet Conservative Guide As Company Entering A Transitional Year

Splunk Inc SPLK will report its fourth-quarter results on February 23. MKM Partners expects the software maker to provide a conservative FY18 outlook as it enters a transitional year.

MKM Partners expects fourth-quarter EPS/revenue of $0.13/$288.4 million versus consensus estimate of $0.17/$288.1 million. The company expects fourth-quarter revenue of $286 million–$288 million.

Splunk’s guidance implies a material drop in license and billings growth rates that should again prove too conservative, particularly in this seasonally strong quarter.

That said, analyst Kevin Buttigieg expects strong outperformance relative to consensus, though growth rates are likely to remain below 40 percent, consistent with the past two quarters.

Related Link: Splunk Has A 'Clear Path' To $2 Billion In Sales

“So we think the combination of conservative guidance and strong seasonality will produce solid upside to consensus for license, billings and EPS, though as it has been in the past two quarters, we expect license growth will remain less than 40 percent and billings growth to be less than the 44+ percent in prior periods,” Buttigieg wrote in a note.

A potential outperformance in the fourth quarter may result in FY 2018 guidance upside as Splunk has typically done in the past. But, the analyst expects Splunk likely to remain conservative as the company views FY 2018 as a transitional year as it moves from License to Cloud that would push sales more toward subscriptions over licenses.

Buttigieg has a Neutral rating on Splunk shares, with a fair value estimate of $60.

At last check, shares of Splunk rose 1.85 percent to $64.02. The shares were trading about 7 percent above the analyst’s $60 fair value estimate.