Goldman’s Kash Rangan upgraded Snowflake to Buy, and issued a broadly bullish report on the software sector.
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Snowflake stock is getting a boost on Friday from Goldman Sachs analyst Kash Rangan, who lifted his rating on the cloud-based data-warehouse company to Buy from Neutral. Rangan also lifted his target price to $275 from $270, and the new target signals a potential gain of 46% from yesterday’s close.
Snowflake (ticker: SNOW) stock went public in mid-September at $120 a share, more than doubling on the first day of trading to $253.93. Driven by investor enthusiasm for high-growth software stocks (Snowflake has been posting triple-digit top-line growth), shares late last year surged to as high as $429. But the stock has cratered as investors shifted some capital toward lower-priced value plays, away from high-multiple growth stocks.
The Snowflake upgrade is part of a larger call, in which Rangan picked up coverage of six other enterprise-software names, launching coverage of MongoDB (MDB) with a Buy rating and $310 target; Anaplan (PLAN) with a Neutral rating and $60 target; SolarWinds (SWI) with a Sell rating and $16 target; and Dropbox (DBX) with a Sell and $26 target. He also assumed coverage from another analyst of both Bentley System (BSY) and Altair Engineering (ALTR), both with Neutral ratings. He has targets of $50 on Bentley stock, and $69 on Altair stock.
Rangan notes that software stocks fell 8% overall since his January initiation of coverage of the group, amid a 50 basis point rise in the 10-year Treasury yield. but he remains bullish on the sector, which he thinks will benefit from “structural changes accelerated by the pandemic, with a $1 trillion-plus cloud software market.
Regarding Snowflake, he notes that the stock has tumbled 34% since he picked up coverage in January, a drop that compares to an average 11% decline for the broader enterprise-software group, and a 3% drop in the Nasdaq Composite. He thinks the company is “well positioned to capitalize on a generational shift of data and analytics to the cloud.”
Rangan sees a potential catalyst in Snowflake’s first analyst day, expected to take place along with an annual user conference in June. Rangan adds that with the stock down 50% from its December peak, “investor expectations have become more balanced.” He thinks Snowflake offers a long-term growth story that is not fully reflected in the current valuation.
Here’s a brief rundown on his other calls:
MongoDB: He says the company is seeing momentum for the company’s Atlas hosted database-as-a-service offering, gaining market share in “one of the largest and most strategic [areas] in enterprise software.” He notes that the stock is down 42% since mid-February.
Dropbox: Rangan is concerned that the company faces “an increasingly competitive backdrop,” with some larger companies bundling cloud storage with other services.
SolarWinds: The analyst views SolarWinds as a market leader in network-performance monitoring, but suggests avoiding the shares, given slowing customer growth, “a challenging competitive environment,” fallout from the recent cyber Sunburst security incident, and other issues.
Anaplan: Rangan sees growing competition in the planning-software segment, and suggests investors instead buy Workday (WDAY) stock for exposure to increasing cloud adoption of financial software.
Bentley Systems: He says Bentley has “a unique software franchise” in infrastructure-engineering design, but is staying on the sidelines for now, while awaiting clarity on a potential U.S. infrastructure bill and the broader U.S. economic recovery.
Altair Engineering: Rangan likes the company’s unusual model, which focuses on the intersection of data analytics, simulation software and high-performance computing. But he thinks the stock is fully valued.
Amid a broad rebound in technology shares, Snowflake stock is up 10.3%, to $207.60, while MongoDB stock is up 5.6% to $258.32. All of the other stocks Rangan addressed have gains of 2% to 3%.
Write to Eric J. Savitz at [email protected]
