Splunk Has New Street-High Price Target: Wells Fargo Says Growth Underappreciated

Cloud-based data analytics company Splunk Inc's SPLK prospects are underappreciated, according to an analyst at Wells Fargo Securities.

The Splunk Analyst: Philip Winslow reiterated an Outperform rating on Splunk shares and increased the price target from $205 to $250. 

The Splunk Thesis: Wall Street underappreciates how Splunk can be used in more places as it evolves its core platform for the future to include data in motion, data from any source and machine learning anywhere, Winslow said in a Monday morning note. (See his track record here.)

The company is also expanding its reach by making its core analytics capability more available to a much broader range of users and use cases, the analyst said. 

The releases of data stream processor and data fabric search create an increasingly comprehensive data platform, according to the company, augmenting its value proposition for enterprise CIOs who want broader and more deeply integrated data platforms, he said. 

The acquisitions of SignalFx and Omnition, combined with Splunk's broad and unified layer of log data and core analytics across the enterprise, form a "trifecta" of observability—metrics, traces and events/log, Winslow said.

The analyst expects the combination of these drivers to position Splunk to not only gain greater wallet share in IT operations and security, but also expand into DevOps and the front-line business, the analyst said.

This should help sustain robust revenue and cash flow growth to meet or potentially exceed management's long-term targets and consensus expectations, he said. 

Wells Fargo said it is of the view that Splunk's growth is underappreciated, as its valuation multiple vis-à-vis software peers is attractive, considering the likelihood of its recurring revenue growing at 35-45% over the medium term as opposed to 18.1% for the peer group.

SPLK Price Action: At last check, Splunk shares were rallying 3.64% to $193.98.

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