Last Minute Thought: Buy or Sell Splunk (SPLK) Stock Before Q1’19 Earnings?


Splunk’s (SPLK) earnings are just minutes away, and at least two analysts expect big things.

RBC analyst Matthew Hedberg, who reiterates an Outperform rating and $158 price target on Splunk stock, expects Splunk to report a strong quarter to start the year.

As always, we like to give credit where credit is due. According to TipRanks, Hedberg has a yearly average return of 32.3% and a 82% success rate. Hedberg has an average return of 28.2% when recommending SPLK stock and is ranked #5 out of 5,182 analysts.

Hedberg wrote, “We expect Splunk to report strong Q1 results as sentiment seems neutral with shares -1% since the last print compared to the S&P at +2%. In terms of the demand environment, our Q1 reseller survey was positive and generally above FY/19 averages. We expect FY/20 to be another strong year in the shift to renewable software bookings after delivering a 77% ratable mix in FY/19 vs. its original guidance of 65% with potential for upside to the 85% mix target in FY/20. This helped drive strong RPO performance, which has become a primary metric for the company closing the year at $1.3B, +57% y/y. Q1 will also be the first chance to hear from new CFO Jason Child , who took over on May 6th, 2019.”

The analyst concluded, “Survey results were generally in- line to above compared with historical results, which we view as positive given recent results vs expectations.”

Monness analyst Brian White added, “We are modeling 1Q:FY20 license revenue of $185.4 million (up 33% YoY) and maintenance & services revenue of $210.0 million (up 22%). We are projecting the addition of 420-450 new customers in 1Q:FY20 compared to >600 in 4Q:FY19 given seasonality. We are projecting 1Q:FY20 deferred revenue of $632.1 million and calculated billings of $149.5 million. That said, given the shift to ASC 606, billings have become a less reliable indicator for tracking trends at Splunk and the company introduced new financial metrics in FY:19. As such, we expect a 4Q:FY19 update around these metrics, including Remaining Performance Obligations (RPO) that stood at $1.3 billion (up 57%) in 4Q:FY19. Given the seasonality in license revenue, we expect software revenue of $240 million (up 39% YoY) in 1Q:FY20, down sharply QoQ from the $464 million (up 42%) generated in 4Q:FY19.”

White maintains a Buy rating on SPLK with $200 price target, suggesting the stock can rise about 55% from current levels. White is Splunk’s biggest bull, and he is also one of the top analysts who cover the stock. (To watch White’s track record, click here)

All in all, the data analytics software maker now looks like a very compelling investing opportunity, as TipRanks analytics showcasing SPLK as a Strong Buy. With an average price target of $155.38, analysts are predicting 21% upside potential for the stock. In total, SPLK stock has received 24 ‘buy’ ratings vs. just 2 ‘hold’ and 1 ‘sell’ ratings in the last three months. (See SPLK’s price targets and analyst ratings on TipRanks)

 

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