Cloudera Analysts Examine Potential Suitors, Takeout Price Amid Sale Rumor

Data engineering and analytics company Cloudera Inc CLDR surged about 19% on Tuesday following reports of the enterprise software company exploring strategic options.

The Cloudera Analysts: Morgan Stanley analyst Sanjit Singh has an Overweight rating and $15 price target for Cloudera.

Wells Fargo Securities analyst Philip Winslow has an Equal-Weight rating and $11 price target.

Needham analyst Jack Andrews has a Hold rating.

Sale Rumors Come Amid Recovery: The sale rumors come after Cloudera has seen three consecutive quarters of business stabilization following Hortonworks integration, Singh said. The company also has an updated product roadmap with the Cloudera Data Platform, or CDP.

The analyst sees opportunities to sustain ARR growth, with the management committing to improving margins and cash flow.

The fundamental story is undervalued, in light of the 18% drop in shares following last week's quarterly results that showed better-than-expected subscription revenue and operating margins, Singh said.

The analyst noted that Robert Bearden, who was appointed CEO recently, has M&A proclivities, having sold Hortonworks to Cloudera and Docker's enterprise business to Mirantis within the past two years.

"A hypothetical takeout price at our price target of $15/share would imply ~5.7x TTM revenues (or ~5.4x NTM revenue), while a higher $18/share takeout price would imply ~7.0x TTM revenues (or ~6.6x NTM revenues), a discount to the current trading range of SMID cap software peers at ~8x NTM revenues," the analyst wrote in the note.

See Also: Investors Sell The News Of IBM-Cloudera Rumor

Deal Rationale, Potential Pricing: Private equity or strategic acquirers could be allured to Cloudera to gain leadership position in the Hadoop/Spark ecosystem. Winslow said the improving renewal rates in the wake of the introduction of CDP Public Cloud should allay concerns regarding elevated churn levels in 2020.

Going by the general valuation of software acquisitions, Wells Fargo arrived at a potential offer price of $13.19 per Cloudera shares.

Alternatively, if a transaction doesn't materialize, the firm said it will continue to monitor the ongoing rollout of CDP—early customer feedback, customer buying interest and adoption—as well as the continued reduction in the elevated level of churn that Cloudera had been experiencing.

Cloudera Acquisition Certainly Possible: Cloudera is a quality company and has made great financial strides in terms of generating profits and FCF, Andrews said. However, the analyst sees only a small number of suitors, with IBM IBM being the most likely strategic buyer.

With IBM in the midst of integrating its Red Hat buy and having appointed a new CEO, the scenario looks less likely.

Needham said Cloudera shares now appear fairly valued: "Thus, while we think an acquisition of CLDR is certainly possible, we do not envision material upside for shareholders from current levels."

The stock traded around $12.08 per share at time of publication.