On Thursday, Piper Sandler adjusted its stance on nCino Inc. (NASDAQ:NCNO), downgrading the stock from Overweight to Neutral. The firm has set a price target of $38.00 for the company's shares. According to InvestingPro data, NCNO is currently trading near its 52-week high of $43.20, with a market capitalization of $4.9 billion. The stock has shown strong momentum, gaining over 43% in the past six months.
This change in rating follows observations of increased customer turnover in nCino's mortgage segment, which accounts for 15% of its sales. The analyst noted that this churn is expected to create a revenue headwind of approximately $10 million for the full year, an increase from the previously estimated $8 million.
The fourth quarter's organic growth outlook for nCino has been estimated at around 10%, a decrease from 13% in the third quarter, after accounting for the estimated $5.2 million in revenue from acquisitions DocFox and FullCirc. InvestingPro analysis reveals that while the company maintains a healthy gross profit margin of 60%, it remains unprofitable with a negative earnings per share of $0.26 over the last twelve months.
Consequently, Piper Sandler has reduced its 2025 revenue estimate for nCino by about $20 million. This revision takes into account the lowered expectations for both the mortgage segment and core business operations, despite some revenue offset from FullCirc's acquisition.
Piper Sandler's price target remains at $38.00, based on a target enterprise value to free cash flow (EV/FCF) multiple of 26 times. This valuation is projected forward to calendar year 2029 estimates, as opposed to the previous year's estimates.
Despite a sell-off after market close, which eroded some of the stock's 41% gains over the past three months, the firm believes the risk-reward profile for nCino is now balanced.
The firm intends to continue closely monitoring nCino's progress, particularly in terms of the company's ability to cross-sell and potentially initiate a recovery in the second half of 2025. Additionally, Piper Sandler is looking out for signs of a broader rebound in mortgage volumes that could influence the company's performance.
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