4 Qualtrics Analysts Are Staying On Sidelines, Despite Growth Prospects

Experience management software provider Qualtrics International Inc XM debuted Jan. 28 on Wall Street. With the company's IPO quiet period expiring, sell-side analysts started coverage of the stock, and most are staying on the sidelines.

The Qualtrics Analysts: BofA Securities analyst Daniel Bartus initiated coverage of Qualtrics with a Neutral rating and $50 price target.

Morgan Stanley analyst Keith Weiss initiated coverage with an Equal-Weight rating and $44 price target.

Piper Sandler analyst Brent Bracelin initiated with a Neutral rating and $49 price target.

Raymond James analyst Brian Peterson initiated coverage of the stock with an Outperform rating and $55 price target.

BofA On 3 Key Positives: Qualtrics has a large and growing total addressable market, Bartus said in a note. Secondly, the company has a strong leadership position, the analyst said.

Thirdly, the company has a compelling land and expand opportunity with customers increasingly focused on XM programs, Bartus noted.

Qualtrics' many avenues for growth, Bartus said, include increased usage, additional functionality and cross-sell with newer products such as Employee Experience. Improving market awareness and the criticality of customer experience and employee experience post-COVID could support new customer additions, according to the analyst.

These positives, BofA said, are partially offset by the current valuation, which is at a premium to SaaS growth peers.

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There's A Lot To Like In Qualtrics, Morgan Stanley Says: Qualtrics is leading the way into the Experience Economy, as it provides a flexible cloud-based platform enabling organizations of all sizes to collect, manage and act on experience data — encompassing customer, employee, brand and product feedback, Weiss said.

The company's 13,000-strong customer base and $765 million in calendar year 2020 revenues put it in leading market share position, the analyst said.

"With strong positioning in front of large secular growth opportunity, conservative estimates heading into CY21, and solid unit economics in the business, there is a lot to like in Qualtrics," Weiss said in the note.

Given that Qualtrics shares are already trading at a slight premium to the peer group of high-growth software IPOs, there is likely to be limited near-term upside.

Post-IPO Spike In Shares Keeps Piper Sandler On The Sidelines: Qualtrics, an experience era market leader, is on-track to exceed $1 billion in billings this year, Bracelin said. The analyst expects revenues to triple to $3 billion to $4 billion by 2026.

Qualatrics shares warrant a premium valuation, given the company's first-mover advantage in a $60 billion TAM, strong leadership with a proven track record, 88%+ subscription gross margin model and a differentiated end-to-end experience platform, according to the analyst.

But, the analyst said he prefers to stay on the sidelines because shares have risen 52% above the $30 IPO price and carry an enterprise value/sales multiple of 24 times on estimated earnings for the calendar year 2022.

Well Positioned To Deliver Elite Growth Long-Term, Raymond James Says: Although the stock is far from cheap and has surged since its IPO, long-term outlook for shares looks constructive, Peterson said.

A number of secular tailwinds are likely to drive increased adoption for experience management, suggesting the broader category could see a factor level increase in spend longer-term, he added.

"With Qualtrics representing the largest and fastest growing player in the market, as well as our checks which reference multiple points of differentiation, we believe that the company is well positioned to deliver elite growth over a longer-term period," Peterson wrote in the note.

Qualtrics Price Action: Shares were down about 6% at $43.80.

(Photo: Qualatrics)