With Proofpoint Q1 Print Looming, Baird Downgrades

Baird downgraded shares of Proofpoint Inc PFPT to Neutral from Outperform, although the firm did suggest that the timing of the downgrade isn't ideal, given that the e-mail security vendor is scheduled to release its first results after the market closes on Thursday.

Sales Challenges Could Be Stifling

The firm attributed the downgrade to industry feedback, specifically about acceleration in sales execution challenges, that has left it worried about the calendar year 2017 guidance.

Analyst Jayson Noland elaborated that he has been hearing of elevated sales force turnover and frustration surpassing quotas in a smaller territory or with newer, non-core products. The analyst also pointed to companies such as Palo Alto Networks Inc PANW and Nutanix Inc NTNX, which suffered investor backlash due to sales execution challenges.

Downside Risk Seen For Q1 Print

Baird sees downside risk on the first-quarter print due to valuation and the sales execution challenges.

Limited High-End Customers: Challenge Or Potential?

The firm said some of the large resellers are yet to fully engage with Proofpoint, which it sees both as a challenge and an upside potential. Given that the company has less than 20 percent market share, the firm sees plenty of opportunity for it.

"We continue to view the shift to Microsoft Office 365 as a catalyst to move off a legacy incumbent. International revenue is only 16 percent of the total and represents a meaningful long-term opportunity but one that could take time to fully exploit," the firm added.

Best-In-Class Leader In Security

Along with the downgrade, the firm also lowered its price target for the shares to $77 from $92.

"We would look to get constructive on the stock again in the event of a pullback or less concern regarding sales execution. We continue to believe Proofpoint is one of the best-in-class leaders in network security," Baird concluded.

At the time of writing, shares of Proofpoint were slumping 7.49 percent to $71.81.

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