Snowflake Inc. (NYSE: SNOW) has seen a meteoric rise since its initial public offering, but over the past few months, this stock has come back to earth. However, one analyst believes that Snowflake is due for a rebound.
Deutsche Bank upgraded the shares to a Buy rating from Hold and raised its price target to $300 from $270, implying upside of 21% from the most recent closing price of $247.03.
The brokerage firm noted that it sees Snowflake’s growth as suggestive of a very large total addressable market and a clear product market fit. Remaining performance obligation rose 213% in the fourth quarter, and supporting metrics such as logo adds and customers with over $1 million product revenue all trended up and to the right, suggestive of continued momentum. As a result, Deutsche Bank remains bullish on the long-term outlook of Snowflake.
The firm previously downgraded Snowflake on December 11, 2020, due to uncertainty around Snowflake’s unusual three-stage post-IPO lockup expiration. This also included a valuation that had gone from being at a discount to high-growth peers to a premium now. The final tranche of Snowflake’s lockup expires on March 5, so in Deutsche Bank’s view the overhang has now passed. Snowflake’s valuation has corrected sharply over the past three months, with shares having fallen from over $380 to about $250.
Deutsche Bank detailed in its report:
In our view, the risk/reward now looks more favorable and we upgrade Snowflake to Buy. We raise our price target from $270 to $300, based on a 47x EV/FY22 sales multiple. A further sweetener is that Snowflake announced that it has eliminated its dual class share structure (effective as of March 1st). We see this is a positive as it removes corporate governance concerns, and allows for potential future inclusion in large indices such as the S&P 500.
Separately, JPMorgan’s Mark Murphy believes the combo of alignment to secular trends including data intensity and digital transformation, very rapid revenue growth at scale and an efficient business model, makes Snowflake an exceptional asset among software companies. Despite JPMorgan’s very favorable view of the technology and the company, the firm is remaining Neutral on the stock as the risk/reward appears fairly balanced at the current price levels. The price target stays at $250.
Snowflake traded up about 2% to $251.65 on Thursday, in a 52-week range of $208.55 to $429.00. The consensus price target is $309.61.