On Monday, Morgan Stanley (NYSE:MS) adjusted its stance on Tenable Holdings, Inc. (NASDAQ:TENB), a cybersecurity company, downgrading the stock to Equal-weight from Overweight. The firm also reduced its price target on Tenable shares from $50.00 to $47.00. According to InvestingPro data, despite this downgrade, 17 analysts have recently revised their earnings expectations upward, with analyst targets ranging from $40 to $55. The downgrade stems from several challenges identified by the analyst, including increased pricing pressure within Tenable's core Vulnerability Management market.
The analyst noted that Tenable faces significant exposure to the U.S. public sector, which could affect its performance. Additionally, the company is expected to see limited upside to margins in the near term. This is attributed to the existing pricing pressure coupled with the necessity for heightened investments aimed at fostering growth. However, InvestingPro data shows the company maintains impressive gross profit margins of 77.55% and has achieved revenue growth of nearly 14% over the last twelve months.
Despite these concerns, the valuation of Tenable's stock does not seem particularly high when compared to its peers. Currently, the stock is valued at approximately 5 times its enterprise value to calendar year 2026 sales (EV/CY26 Sales) and 18 times its free cash flow (FCF). In comparison, peers are trading at around 5.4 times and 20.5 times these metrics, respectively.
The analyst concluded that while Tenable's valuation is not demanding, the anticipated slowdown in growth and potential downside to future free cash flow estimates could keep the stock's valuation within a limited range. This assessment suggests a cautious outlook for Tenable's stock performance in the near future.
In other recent news, Tenable Holdings, Inc. posted robust growth in its third quarter of 2024, registering a 13% year-over-year increase with a revenue of $227.1 million. The company's earnings per share stood at $0.32. Additionally, Tenable announced a $200 million increase to its share repurchase program.
The company's growth was propelled by high demand for its Tenable One and Cloud Security products, as well as successful ventures in the public sector and mid-market. Tenable added 386 new enterprise customers and witnessed a 100% year-over-year growth in Tenable Cloud Security.
The company's operating income reached $45 million, with a 20% operating margin, a significant rise from the previous year's 10%. Tenable's Q4 revenue is projected to be between $229 million and $233 million, with full-year revenue expected to fall between $893.3 million and $897.3 million. Non-GAAP diluted EPS for Q4 is estimated to range from $0.33 to $0.35.
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