Box Inc Is A Buy On Sustained Growth, Favorable Competitive Trends, Says DA Davidson

Box Inc BOX is a market leader in SaaS solutions for enterprise content management, file sync and share, according to D.A. Davidson.

The Analyst

D.A. Davidson analyst Rishi Jaluria initiated coverage of Box Inc shares with a Buy rating and 12-18 month price target of $25.

The Thesis

Jaluria outlined three primary reasons for D.A. Davidson's bullish take on Box in a Wednesday note:

• The company is capable of sustaining high growth rates due to continued cross-selling opportunities and seat expansion.
• The competitive environment becoming more favorable for the company, with competing vendors either exiting the market or de-emphasizing their ECM product offerings.
• Box has shown impressive operating leverage in its model, with a 600-basis-point year-over-year operating margin expansion expected in 2018.

"We expect continued leverage, especially from sales and marketing, and model an additional 700 basis points of margin leverage in fiscal 2019," the analyst said.

D.A. Davidson projects the Redwood City, California-based company to be sustainably free cash flow positive.

The research firm estimates a 2018 non-GAAP loss of 45 cents per share on 27-percent revenue growth, in line with the consensus. For 2019, D.A. Davidson expects a loss of 20 cents per share on 23-percent revenue growth.

Box faces risk, particularly from competitors Dropbox and Microsoft Corporation MSFT; the likelihood of the company continuing to bleed on the bottom line; competition from other cloud storage vendors such as Alphabet Inc GOOGL and Amazon.com, Inc. AMZN's AWS; and its dual-class share structure, Jaluria said. 

The Price Action

Box Inc. shares were up about 16.5 percent over the past year until Wednesday.

The stock was up 4.74 percent at $22.20 near the end of Thursday's trading session. 

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