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Investors Advised To Wait For The Next Catalyst To Get Into Splunk

Investors Advised To Wait For The Next Catalyst To Get Into Splunk
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Citing Splunk Inc (NASDAQ: SPLK)'s valuation and limited upcoming catalysts, Morgan Stanley said it sees limited upside to its price target for the shares of the company.

Accordingly, the firm downgraded shares of the company from Overweight to Equal Weight, while maintaining the price target at $77.

Analysts Melissa Franchi and Keith Weiss said they view Splunk as secularly well-positioned, with durable growth drivers and limited competition. However, the analysts noted that their customer survey was incrementally more balanced compared to last year.

Morgan Stanley noted Splunk shares were up 30 percent year to date despite the 2018 free cash flow estimates not budging. The firm said it moved to the sidelines, as it sees limited support for further multiple re-rating or material revisions with its 2017 Splunk customer survey.

See also: Key Takeaways From SplunkLive! 2017

The firm said it saw signs of maturity within the customer base, with respondents expecting Splunk spending to grow at a stable rate of 8 percent over the next three years, down from the more attractive growth in 2016 and also down from its 2016 survey. The firm noted that customers are shifting spending from the basic Splunk Enterprise to Splunk Cloud and the new premium solutions.

The management's 2020 outlook assumes net customer addition to increase from 2,000 a year in 2017 to 3,000 a year by 2020, the firm noted. However, the firm noted that customer adds have remained stuck at about 5,00 per quarter for the past few quarters despite increased S&M hiring.

"That said, Spunk realigned its sales force at the beginning of the year to accelerate customer adds and it may still be too early to see the fruits of those changes come through the model," the firm said.

Additionally, the firm said subscription, though ramping up, may not be a full subscription transition. Despite sustained top-line beats, the firm noted that operating margins have not seen material expansion in recent years. The firm also said the consensus free cash flow estimates have failed to move materially higher throughout 2018.

Related Link: Oracle And Splunk: 2 Cloud Opportunities Floating Under Most Investors' Radar

Latest Ratings for SPLK

Nov 2018BMO CapitalMaintainsOutperformOutperform
Nov 2018BernsteinDowngradesOutperformMarket Perform
Oct 2018KeyBancMaintainsOverweightOverweight

View More Analyst Ratings for SPLK
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Posted-In: Keith Weiss Melissa Franchi Morgan StanleyAnalyst Color Downgrades Analyst Ratings Tech Best of Benzinga


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