This Analyst Sees Nearly 30% Upside In Twilio Shares

Summit Redstone’s Jonathan Kees believes Twilio Inc TWLO “has built a competitive barrier that would be difficult to surmount and has improving scale and leverage.”

Kees initiated coverage of the company with a Buy rating and price target of $36.

Growth To Continue

“As the company approaches consistent profitability and cash generation in 2018 in our model, we believe that investors will start valuing other non-growth attributes,” the analyst mentioned.

Kees believes Twilio is likely to continue to deliver the high growth rates investors have become accustomed to, although the pace is expected to decelerate.

However, the pace of deceleration is unlikely to be as steep as the Street currently expects, with the consensus expectations for growth at 61 percent year-on-year for 2016 and 30 percent year-on-year for 2017 and 2018, following growth of 78 percent and 88 percent, respectively, for 2014 and 2015.

Favorable Risk/Reward

“We believe that the Street is underestimating the growth trajectory, based on the strength of TWLO’s growth components. We also believe that these components would be catalysts for the stock when sales growth comes in better than expectations,” the analyst stated.

Following the recent pullback in Twilio’s shares, the risk/reward is now favorable and the stock is longer the most expensive software cloud stock in Summit Redstone’s coverage universe, despite the company being among the fastest growing and with the best-in-class ecosystem and platform being well positioned for “an evolving communications landscape.”

Shares of Twilio were up 1.4 percent in Thursday's pre-market session.