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Goldman Sachs raises SolarWinds price target to $13.50, keeps sell rating on the stock

Published 2024-02-09, 11:10 a/m
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On Friday, Goldman Sachs (NYSE:GS) adjusted its outlook on SolarWinds Corporation (NYSE:SWI), a software company, by increasing the price target to $13.50, up from the previous target of $12.00. The firm maintained its Sell rating on the stock despite the company's fourth-quarter performance, which surpassed market expectations.

SolarWinds shares experienced a 6% increase after the company reported better-than-expected results in several key financial metrics. The company's subscription revenue grew by 12.5%, total revenue saw a 4.0% increase, and adjusted EBITDA improved by 10.3%. This quarter marked SolarWinds' fifth consecutive period of revenue outperformance, with a guidance beat at the midpoint that was slightly higher than the average.

The fourth quarter of 2023 was notable for SolarWinds in several respects. The company saw strong growth in its $100K+ annual recurring revenue (ARR) customer base, with an addition of 44 customers quarter over quarter. Additionally, the maintenance renewal rates for the trailing twelve months hit 96%, aligning with the levels seen in 2019. Subscription revenue and ARR also continued to grow significantly.

Despite these positive indicators, Goldman Sachs remains cautious about SolarWinds' prospects. The firm's analyst cited several challenges, including intensified competition from cloud-native vendors and potential volatility due to the ongoing transition to a subscription-based business model. Moreover, the lingering effects of the cyber attack that SolarWinds suffered in December 2020 continue to be a concern.

SolarWinds' future revenue guidance was slightly below consensus estimates, but the adjusted EBITDA guidance was 8% above expectations. The company's efforts to convert its maintenance customer base to subscription services could potentially open up an opportunity to generate over $800 million in subscription revenue. However, Goldman Sachs' stance reflects a conservative outlook on the company's ability to navigate the competitive and dynamic software industry landscape.

InvestingPro Insights

SolarWinds Corporation (NYSE:SWI) has demonstrated a resilient financial performance with its latest quarterly results. The company's market capitalization stands at a robust $2.18 billion, reflecting investor confidence in its business model and growth prospects. In terms of valuation, the adjusted price-to-earnings (P/E) ratio for the last twelve months as of Q3 2023 is 60.26, which may indicate the market's expectations for future earnings growth despite the negative standard P/E ratio of -242.55.

The company's revenue growth paints a positive picture, with a 3.99% increase in the last twelve months as of Q3 2023 and a 5.68% quarterly growth in Q3 2023. This aligns with the reported 4.0% increase in total revenue and supports the firm's fifth consecutive period of revenue outperformance. Furthermore, the gross profit margin stands impressively high at 90.25%, underscoring SolarWinds' ability to maintain profitability amidst its growth trajectory.

InvestingPro Tips suggest that the company's share price performance has been strong, with a 1-year price total return of 27.72%, which could be a sign of market optimism around its recovery and growth efforts. Moreover, the InvestingPro Fair Value estimate of $18.16 suggests potential undervaluation, providing an interesting contrast to Goldman Sachs' conservative stance. For readers looking to delve deeper into SolarWinds' financials and future prospects, InvestingPro offers additional insights. There are more tips available on InvestingPro, which can be accessed with a special offer. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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