Guggenheim On Software: Bullish On Wix, HubSpot, Neutral On Altair

Guggenheim initiated coverage of a trio of software companies Wednesday with a mostly bullish take on the outlook for the group.

The Analyst

Guggenheim analyst Ken Wong: 

• Initiated coverage of Wix.com Ltd WIX with a Buy rating and $130 price target.
• Initiated HubSpot Inc HUBS with a Buy rating and $190 price target.
• Initiated Altair Engineering Inc ALTR with a Neutral rating.

The Thesis

For Wix.com, Wong said the company has a large market opportunity and a strong business model, and the stock deserves a premium valuation.

“We believe the company's transparent and consistent business model enables management to pursue optimal growth opportunities and provides us with a base valuation of $130 and a floor of $60 ($5.1 billion in collections) with potential upside nearing $180,” the analyst said.

Wix has a major opportunity to capitalize on the wave of small- and medium-sized businesses that will be digitizing their operations in the next several years, he said. 

For HubSpot investors, Wong said the company’s push from a product-centric company to a small business platform makes it well-positioned to capitalize on similar digitization trends.

“We believe the adoption of the full suite (1 percent) will eventually track with sales of multi-products (35 percent) and drive higher customer ASRPC,” the analyst said.

HubSpot should eventually be able to achieve margins of at least 20 percent as it scales its business, he said. 

Altair is also at the epicenter of design digitization, but the company has more execution risk than the two Buy-rated names, Wong said. 

“We see greater execution risk and lower revenue/cost synergies from the Datawatch acquisition due to the limited customer overlap,” the analyst said.

Altair has an impressive product portfolio and a unique unit-based model for licensing, but its current valuation is fair given its low-to-mid teens organic growth rate, he said. 

Price Action

Altair was down 0.61 percent at $37.47 at the time of publication Wednesday, while HubSpot was down 0.91 percent at $169.03. Wix shares were rallying 8.35 percent to $117.98. 

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