Market Overview

Needham: Instructure Inc Price Closer To Reflecting Full Value of Fundamentals


Instructure Inc (NYSE: INST) generated significant alpha versus the Russell 2000 since the start of 2017, with the stock returning 131 percent compared to the Russell's 15 percent gain, on the back of revenue outperformance, an analyst at Needham said.

The Analyst

Needham analyst Scott Berg downgraded Instructure from Strong Buy to Buy, but increased his price target from $46 to $50.

The price target revision was due to the analyst rolling forward his EV/revenue valuation multiple from his 2018 forecast to his preliminary 2019 forecast.

The Thesis

Valuation, incremental execution risks and margin pressure due to mix shifts to corporate human capital management, or HCM, sales are the three premises behind Needham's downgrade of Instructure stock, Berg said in a note.

Berg sees rising risks and expenses, as bookings reliance begin more pronounced shift to corporate sales. The analyst highlighted limited brand awareness in the corporate HCM end market and incremental sales investments needed in 2019, which could keep margins suppressed, as his primary concerns.

The analyst believes the company's 2018 Bridge bookings goals of 15-20 percent new bookings are realistic, however, the increased risks are more relevant for 2019 and beyond.

That said, the analyst continues to like the company's product positioning within the larger and more fragmented HCM end market.

The Price Action

Instructure shares have gained about 81 percent over the past year.

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Latest Ratings for INST

Jan 2020SunTrust Robinson HumphreyDowngradesBuyHold
Dec 2019CitigroupDowngradesBuyNeutral
Dec 2019First AnalysisDowngradesOutperformNeutral

View More Analyst Ratings for INST
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