DocuSign Posts A Positive Q2 Print, But BofA Stays Neutral On Limited Upside Projections

Docusign Inc DOCU reported second-quarter results Wednesday that were better than expected, but not good enough to turn Bank of America Merrill Lynch bullish.

The Analyst

Bank of America's Kash Rangan maintained a Neutral rating on DocuSign's stock with a price target lifted from $63 to $64.

The Thesis

DocuSign's "solid" Q2, highlighted by a top- and bottom-line beats, is overshadowed by concern related to the retirement of Neil Hudspith, the e-signature company's president of worldwide field operations, Rangan said in a Thursday note. (See his track record here.) 

DocuSign's 33-percent billing growthlikely fell short of some buy-side expectations, the analyst said. 

The company's Q3 and full-year 2019 billing growth guidance of 22 percent and 24 percent, respectively, faces difficult comps, Rangan said.

Yet DocuSign did show an acceleration in enterprise and commercial customer additions in the quarter, which may imply sales momentum is sustainable in the 30-percent-plus range, the analyst said. DocuSign's catalysts include the acquisition of SpringCM and the availability of Dreamforce products, he said. 

A bullish stance on the stock can't be justified at this time, as a $64 price target implies minimal upside from Wednesday's closing price, Rangan said.

The price target is based on 14 times fiscal 2020 estimated recurring revenue — assuming 21 percent growth — which is a premium to comparable SaaS companies that trade at 10 times recurring revenues with similar growth profiles, according to BofA. 

Price Action

DocuSign shares were slipping 8 percent to $58.05 at the time of publication Thursday. 

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