UPDATE: Goldman Sachs Downgrades SolarWinds on Multiple Challenges Ahead

In a report published Friday, Goldman Sachs analyst Greg Dunham downgraded the rating on SolarWinds SWI from Neutral to Sell, and lowered the price target from $46.00 to $35.00. In the report, Goldman Sachs noted, “We downgrade SWI to Sell from Neutral and see 11% downside to our new $35 12-month target ($46 prior) vs. 0% average upside for our coverage. A growing product portfolio, an evolving go-to-market, new geographies, and serving MSPs all add to complexity and risk not fully reflected in consensus. We also note a slow macro and potential secular challenges as customers shift to MSPs. We see stabilization taking longer than consensus implies, which may cause SWI to sacrifice sales growth to maintain margins, or give up some margin for sales, pressuring FCF, EPS, and the multiple. We lower 2014/15/16 non-GAAP EPS estimates 6%/14%/22% on the revised outlook.” SolarWinds closed on Thursday at $39.12.