DocuSign Is The E-Signature Standard, But Shares Are Fairly Valued, Morgan Stanley Says

DocuSign. Inc. (NASDAQ: DOCU)’s analyst IPO quiet period ended Tuesday. Morgan Stanley weighed in on the stock, highlighting its strong brand and wide-open market.

The Analyst

Morgan Stanley analyst Stan Zlotsky initiated coverage on DocuSign with an Equal-weight rating and $42 price target.

Five other analysts initiated on DocuSign on Tuesday; get our full coverage in real time by subscribing to Benzinga Pro and searching ticker “DOCU.”

The Thesis

Zlotsky praised DocuSign for accelerating the pace of “the ultimate stamp of business agreement for generations”: the pen-and-paper signature. (See the analyst's track record here.) 

The e-signature company has a strong competitive edge in a largely untapped market, the analyst said. DocuSign has only penetrated 2 percent of a $25-billion total addressable market, he said. 

The company’s projected growth has already been priced in, Zlotsky said. Higher valuations will depend on customer acquisition sustaining its high-30-percent growth rate versus the 34-percent and 29-percent growth Zlotsky forecast for fiscal 2019 and 2020, respectively.

DocuSign benefits from its strong branding, the analyst said: the company’s name is near the quality of Uber or Google, in that it could potentially become the verb for signing documents electronically in general — think “Ubering” and “Googling.”

That branding could also be DocuSign's greatest risk, Zlotsky said. A security breach or fraud event could damage the company even if it is not liable, the analyst said.

“Managing this possible risk is why we expect DocuSign to continue spending $100-million-plus a year on R&D.”

Price Action

DocuSign shares were up 0.95 percent at the time of publication Tuesday at $43.39. 

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