Be A Buyer Of Splunk On Weakness

Splunk Inc SPLK is undergoing a business and sales transition, which may cause fluctuations in its near-term results. “We believe these are sound long term moves that will drive higher long term revenue growth and would be a buyer on weakness in the stock,” Bernstein’s Mark L. Moerdler said in a report.

Moerdler initiated coverage of the company with an Outperform and a price target of $72.

Reasons To Own The Stock

Moerdler mentioned the following reasons for considering Splunk to be well positioned:

• The company has been beating the consensus expectations for revenue growth due to a large Total Addressable Market and its differentiated product.
• The stock’s fair valuation provides “multiple support enabling growth to drive stock returns.”
• The company has opportunities to achieve long-term margin expansion, “driven by Cloud margin expansion and S&M and R&D leverage due to partner ecosystem.”

Related Link: Splunk's Q4 Beat Overshadowed By Q1 Guidance

Splunk’s near-term results could be bumpy, given that the company is undergoing transition. Splunk is shifting the focus of its business from license to subscription, while shifting the focus of sales to new customer from existing customers, the analyst noted. He added that the transition would enable the company to continue posting revenue growth ahead of consensus expectations.