Market Overview

Goldman Sachs: Newly Public Avalara Shares Hold 30% Upside Potential

Goldman Sachs: Newly Public Avalara Shares Hold 30% Upside Potential

Tax software maker Avalara Inc (NYSE: AVLR) made an initial public offering of 7.5 million shares at $24 each, with the shares priced on June 15.

The Analyst

Goldman Sachs analyst Jesse Hulsing upgraded Avalara from Neutral to Buy and maintained a 12-month price target of $45, suggesting 30-percent upside. 

The Thesis

Avalara shares have underperformed Goldman's coverage significantly after the IPO, Hulsing said in a Wednesday note. (See the analyst's track record here.)

The weakness in the stock has created an opportunity to own what the analyst said is  "the category winner in Avalara is compelling due to its strong secular tailwind from e-commerce growth, a lack of clear competitive threats and a potential regulatory catalyst following the recent South Dakota vs. Wayfair Inc (NYSE: W) Supreme Court ruling, Hulsing said. 

These factors could help the company — a SaaS provider of software to automate the calculation, collection and remittance of transaction taxes — to sustain 20-percent-plus growth through 2020, according to Goldman Sachs.

"We view this growth profile as durable due to AVLR's large TAM (we estimate $10 billion) and lack of a clear competitive threat," Hulsing said. 

The analyst forecast long-term margins trending at over 20 percent due to high gross retention. Hulsing said he expects Avalara to be free cash flow positive in 2019.

The Price Action

Avalara shares were rallying 12.89 percent to $39.14 at the time of publication Thursday. 

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Latest Ratings for AVLR

Aug 2020Raymond JamesMaintainsOutperform
Jun 2020NeedhamMaintainsBuy
Jun 2020Piper SandlerMaintainsOverweight

View More Analyst Ratings for AVLR
View the Latest Analyst Ratings


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