Splunk Double Downgraded by UBS on Concerns About Growth Estimates

The consensus forecast for Splunk's fiscal 2022 revenue growth - 26% - is too high, says an analyst at UBS.
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Splunk  (SPLK) - Get Report shares fell Wednesday after UBS analyst Karl Keirstead double downgraded the data analysis software company to sell from buy and slashed his share-price target to $165 from $242.

The consensus forecast for fiscal 2022 revenue growth - 26% - is too high, he said, according to Bloomberg. “We would not be surprised if Splunk sets new (lower) FY22 targets at its analyst day on October 21,” Keirstead said.

Splunk shares recently traded at $205.61, down 4.74%. But shares of Splunk have jumped 37% year to date amid strong demand for software during the coronavirus pandemic.

Keirstead said his field checks pointed to recurring revenue growth of 5% to 20% rather than the 40% that Splunk estimates.

What he heard in the field doesn’t jibe with a stock trading at 13 times estimated 2021 revenue, he said.

Morningstar analyst Dan Romanoff offered positive commentary about Splunk in a report he wrote in August.

“The shift toward cloud subscription sales, spurred by the coronavirus, and away from term license deals is consistent with both last quarter and management’s roadmap,” Romanoff said.

“Ultimately we believe a cloud model is preferred by investors and customers alike. Given the more rapid transition to a SaaS model, we overhauled our model and as a result we are raising our fair value estimate to $200 per share from $182.”

Last month, Baird analyst Jonathan Ruykhaver upgraded Splunk to outperform from neutral, citing impressive growth. He also increased his price target on the stock to $240 from $220.