Splunk (SPLK) - Get Report  shares climbed 3.4% to $118.74 Tuesday after analysts at J.P. Morgan upgraded the business-software company to overweight from neutral with a $130 price target. 

The target represents potential 13% upside for the stock. Splunk shares in the Tuesday premarket were rising more than 3% to $118.30. 

The firm says bookings growth should rebound as the San Francisco company makes the transition to a recurring/renewable model. The company's second-half bookings target of $2 billion indicates 32% year-over-year growth. 

Analyst Mark Murphy says he's been bullish on Splunk's fundamentals for at least three quarters, but concern about the stock's valuation kept the firm neutral.

"Subsequent to the material cash flow guide-down announced in August, we view [the] Street consensus as largely derisked," Murphy wrote.

The stock's multiples could expand "as investors start to view Splunk as a recurring/renewable revenue business at scale, aligned to data growth, with a strong competitive position and brand," he said.

Splunk shares are trading at a multiple of around 6 times enterprise-value-to-calendar-2020-revenue, down from nearly 9 times EV-to-2019-revenue a year earlier, the analyst wrote.

JPMorgan did identify several risks to its bull case, including the company's consumption-based pricing model. "Customers may prefer competing pricing models, such as those on a per-node or device basis or even open-source solutions," Murphy wrote.