Sell-Side Likes Splunk's Q4 Earnings, Outlook

Big data software company Splunk Inc SPLK reported strong fourth-quarter earnings, which prompted three Street analysts to turn incrementally bullish on the stock.

Raymond James: The Numbers

Splunk's fourth-quarter report is highlighted by multiple beats driven by license upside and large deals, Raymond James' Michael Turits said in a research report.

• Revenue rose 35 percent from last year to $622 million versus estimates of $563 million;
• License revenue rose 38 percent to $411 million versus expectations of $345 million;
• Billings rose 29 percent to $797 million versus estimates of $739 million, while current billings rose 39 percent; and
• EBIT margin of 26.8 percent versus 25.5 percent.

Turits maintains an Outperform rating on Splunk with a price target lifted from $122 to $157.

Wells Fargo: 'Splunktastic Finish'

Splunk marked a "Splunktastic Finish" to its fiscal year with 179 deals signed worth at least $1 million, Wells Fargo's Philip Winslow said in a research report. For the year, the company secured 394 deals of at least $1 million, which represents an increase of 45.4 percent year-over-year. The company closed 24 contracts worth more than $10 million in the year versus 10 last year.

Winslow maintains at Outperform, price target lifted from $145 to $165.

BMO: Demand Momentum

Splunk faced difficult expectations for the quarter but the company "cleared relevant top-line expectations," BMO Capital Markets' Keith Bachman said in a research report.

Investors have reason to be disappointed with operating cash flow margins of 20.5 percent of revenue versus the average of the last two January-ending quarters of 33 percent. Also, management's operating cash flow guidance of $350 million implies 15.8 percent of revenue versus 20 percent of revenue for all of fiscal 2018 and 16.4 percent in 2019.

The analyst said free cash flow generation should improve in fiscal 2021 with operating cash flow margins improving to 16.2 percent of revenue. Operating cash flow metrics are likely to take a backseat to the company's demand momentum, which continues to push the stock higher.

Bachman maintains at Outperform, price target lifted from $132 to $162.

Price Action

Splunk's stock traded at $134.54 per share Friday afternoon.

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