Goldman Sachs: Mimecast Shares Have 20% Upside Potential

Mimecast Ltd MIME, an email and data security company, has endeared itself to an analyst at Goldman Sachs, who premised her positive opinion on three factors.

The Analyst

Gabriela Borges upgraded Mimecast from Neutral to Buy, with a 12-month price target of $53, suggesting 20 percent upside from current levels.

The Thesis

Mimecast has been on a tear since their IPO in 2015, with a 65 percent gain over the past year compared to the 19 percent gain for the Russell 2000 Index, Borges said in a note.

Accelerating share gain, inflecting free cash flow and attractive valuation relative to peers are the three reasons behind the upgrade, Borges said.

The analyst noted that as average order value inflected from negative 8 percent in FY2017 to 8 percent in FY2018, share gain has accelerated. This is primarily due to the company's success in mid-market enterprise.

Despite Goldman's neutral stance on the email security subsector over the past two years, Borges believes Mimecast has a "good runway for share gain" as well the potential for an expanding total addressable market.

"We estimate that Mimecast is on track to gain 250 bps of share in 2018, up from 175 bps of share in 2017," the analyst said.

Despite the year-to-date outperformance by the SMID-cap SaaS space, Borges finds the valuation of Mimecast to be attractive, relative to peers.

Goldman sees the decline in customer acquisition costs seen in CY2017 as a function of better demand trends and investments in priors years coming to fruition.

The Price Action

Mimecast shares were up 6.61 percent to $45.89.

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