William Blair Upgrades Splunk To Outperform Following User Conference


In a research note released yesterday, William Blair analyst Bhavan Suri upgraded shares of Splunk (NASDAQ:SPLK) from a Market Perform to an Outperform, following Splunk’s annual user conference. No price target was provided.

Suri wrote, “We attended Splunk’s annual user conference and came away with an incrementally positive view of the company’s positioning within the broader analytics market. In a recent note outlining our conclusions from the company’s analyst day (held during the conference), we highlighted our favorable view of the demand environment, Splunk’s competitive positioning, and management’s strategy for capturing wallet-share in what appears to be a large and growing market opportunity, with a view toward becoming more constructive on the stock. The results of four days of extensive customer, partner, and employee surveys—combined with our other survey work throughout the quarter— provided compelling evidence supporting our initial conclusions and gave us increased conviction that it is still early days for Splunk in terms of market penetration. Although the company’s valuation remains relatively rich versus the broader information technology space, we believe its characteristics from a financial and environmental standpoint support a favorable risk/reward trade-off at current levels from both a near- and long-term perspective.”

Suri wrote, “The stock trades at an enterprise value of 11.8 times our calendar 2015 revenue estimate versus the fast growth SaaS group median of 5.9 times. While we admit shares continue to trade at a relatively rich valuation, we now have greater conviction that current levels (which are 50% below the 52-week high) represent an attractive entry point to own the stock. From a near-term perspective, we believe management has recently done a better job communicating the merits of its new pricing strategy, and our sense is that investors are starting to get more comfortable with the shift to an increasing number of ratable deals. Combined with our survey work that suggests a robust demand environment capable of driving results nicely ahead of current expectations, we believe it should be easier for the stock to work. Longer term, we believe Splunk’s material technology lead, marginal penetration in what we view as a sizable greenfield market opportunity, and leverage in the model provide ample room for the company to grow into its multiple.”

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Bhavan Suri has a total average return of 0.8% and a 42.9% success rate. Suri has a 0% average return when recommending SPLK, and is ranked #1761 out of 3343 analysts.

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