The Street Debates Box: Buy The Dip Or Expect More Declines?

Cloud storage provider Box Inc BOX reported Tuesday its second-quarter results, which showed multiple concerning metrics, including a slowdown in billings growth and a slightly weak outlook for the third quarter.

The Analyst

• KeyBanc Capital Markets' Rob Owens maintains an Overweight rating on Box with an unchanged $33 price target.
• DA Davidson Rishi Jaluria maintains at Buy, price target lowered from $31 to $30.
• Raymond James' Brian Peterson maintains at Outperform, unchanged $33 price target.
• Oppenheimer's Ittai Kidron maintains at Outperform, unchanged $28 price target.
• Canaccord Genuity's Richard Davis maintains at Buy, unchanged $30 price target.
• JMP Securities' Greg McDowell maintains at Outperform, price target lifted from $28 to $32.

Box's stock traded around $23.84 at time of publication, down 10.4 percent.

KeyBanc: Plenty Of Positives

Box's second-quarter earnings contain "plenty of positives" to warrant a continued bullish stance on the stock, Owens said in a note. These include billings and revenue upside to expectations and "solid" large deal performance with 50 deals over $100,000 signed.

Box's stock is trading at 5.6 times EV/2019 revenue, which the analyst said is attractive given a differentiated platform, a low penetration rate and strong renewal unit economics.

DA Davidson: Optimistic Near-Term Outlook

Box boasts several potential catalysts in the near-term, including the annual user conference which kicks off Thursday, Jaluria said in a note. The company is expected to discuss its "most comprehensive set of product announcements ever made." Beyond this week's user conference, management's guidance for the third quarter and full fiscal year is mostly inline with consensus estimates and signals revenue and bookings growth rates will accelerate into the next fiscal year.

Raymond James: Attractive 'Reset'

Box's management pushed out its $1 billion annual revenue run rate target from the second half of 2021 to the full year 2022. The delay removes an overhang in the stock as the prior target would require a level of growth that would be difficult to achieve. The new target implies a more realistic high-teens to low 20 percent compounded annual revenue growth rate through 2022.

The reset in guidance now implies Box's stock is trading at a 30-percent discount to the SaaS group and investors are encouraged to be buyers on the dip.

Oppenheimer: Signs Of Stability

Box's earnings showed continued pressure in net expansion and retention rates -- two key metrics to warrant a bullish stance, Kidron wrote in a note. However, there are also signs of stability in these metrics in the quarter, including steady overall sales productivity and add-on penetration. Over time newer product features and a maturation of the salesforce will result in improvements in investor confidence.

Canaccord: Ignore The 'Grumps'

Box's earnings includes concerning metrics that the "grumps" are quick to highlight, but the longer-term picture remains positive, Davis wrote in a note. The company continues to hold an "exemplary reputation" as a secure, manageable platform. Granted, the company isn't executing perfectly but multiple metrics are showing signs of improvement, most notably a path towards achieving a 30 percent-plus EBITDA margin.

JMP: Incrementally Bullish On Valuation

Box's stock just below the $25 level implies a 5.2 times EV/2019E revenue multiple and 4.6 times on 2020 estimates, McDowell said in a note. The firm's revised $32 price target implies a multiple of 6 times 2020 estimates, which is still a discount to its peers. Box's stock is also trading at a "very reasonable" EV/2020E adjusted FCF multiple of 21 times.