What Merrill Lynch Is Saying About Splunk (SPLK) Stock After Earnings

Last night, Splunk (NASDAQ:SPLK) reported solid fiscal second-quarter results, while raising its FY:19 outlook. Splunk investors are clearly pleased with the quarterly report, bidding up the stock 15% in Friday’s trading session.

Splunk reported 2Q:FY19 revenue of $388.3 million that sailed through Street estimate of $358.5 million and EPS of $0.08 beat the Street’s projection of $0.05. For 3Q:FY19, Splunk expects sales of $430-432 million (Street at $427.6 million). Furthermore, Splunk raised its FY:19 outlook that now calls for sales of $1.685 billion (vs. $1.645 billion previously).

In reaction, Merrill Lynch analyst Kash Rangan reiterates a Buy rating on Splunk shares, with a price target of $135, which represents a potential upside of 10% from where the stock is currently trading. (To watch Rangan’s track record, click here)

Rangan commented, “While the strength in FQ2:19 (July) was consistent with our checks, what stood out was 1) Billings acceleration of 35% versus 19% in FQ1:19; 2) License growth of 36% versus BofAML’s 24% and mild acceleration versus 35% in FQ1:19; 3) Revenue growth of 39% versus BofAML’s 33%; 4) Software revenue growth of 43% consistent with our preview; 5) FQ319/FY19E rev guided $3mn/$40mn. On the flipside, non-GAAP operating margin of 2.9% and pf EPS of $0.08, while better than the Street at 2.4% and $0.05, respectively, fell short of our Street high estimates. More importantly, FCF came in at $27mn vs $16mn Street and company committed to $275mn in FCF by FY19.”

“We believe several reasons exist to start viewing SPLK the way investors view NOW’s resilient business model. 1) In our cloud wars 10, we also highlighted SPLK as a key beneficiary of Digital transformation trend (Big data analytics). 2) Large TAM and defensible position, 3) solid recurring rev biz – driven by term on prem license + ratable cloud biz that will reach +85% of bookings in FY20). 4) Increasing subs mix + adding new customers temporarily depresses OM and FCF but we expect a snap back once the mix of subs stabilizes,” the analyst concluded.

Overall, TipRanks reveals the analytics giant as one drawing bullish attention on Wall Street. Out of 26 analysts polled in the last 3 months, 22 rate a Buy on SPLK stock, three maintain a Hold, while only one issues a Sell on the stock. The 12-month average price target stands at $131.12, marking a nearly 6% upside potential from where the stock is currently trading. 


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