Cloudflare To See Upside From Solid Demand Uptick, Analyst Says Citing 3Q Checks

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  • Wells Fargo analyst Andrew Nowinski upgraded Cloudflare, Inc NET to Overweight from Equal Weight with a price target of $65, up from $62
  • Cloudflare shares have declined 65% YTD while NASDAQ declined ~34% YTD, creating a better entry point. 
  • He believed Cloudflare benefited from the increasing focus on consolidation to reduce costs and gain share from point product vendors. 
  • Cloudflare's investments in the channel paid off, as he noted a solid uptick in demand trends in his 3Q22 Reseller Survey. 
  • Finally, Cloudflare will likely generate positive Free Cash Flow in the back half of CY22, and he believed the company would remain above the "Rule of 40" in the future. 
  • The price target multiple is a premium to the peer group average but justified due to higher growth assumptions. 
  • Mizuho analyst Gregg Moskowitz lowered the price target on Cloudflare to $65 from $85 and maintained a Neutral rating. 
  • Software stocks "remain besieged" by high inflation, rising yields, supply chain constraints, currency headwinds, and the ongoing Russia-Ukraine war. 
  • While fundamental checks "have been healthy overall," they have "again picked up indications of uneven demand."
  • Though he cut the price target, Moskowitz found that software shares have priced in many risks.
  • Price Action: NET shares traded higher by 14% at $52.09 on the last check Monday.
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