Investment firm Wells Fargo started coverage on Splunk ( NASDAQ: SPLK ) on Tuesday, stating that the data software company has "the best observability platform in the market."
Analyst Andrew Nowinski started coverage on Splunk ( SPLK ) with an overweight rating and a $95 price target, noting that the company's products are "deeply entrenched" inside many large customers, which should help "long-term durable growth and profitability."
Nowinksi also noted that Splunk's ( SPLK ) revenue growth has started to "normalize," which he believes will "have a positive impact on the valuation."
"Splunk has persevered through five major transitions over the last 3 years, starting in May 2019, including a shift from perpetual to cloud [software-as-a-service], a pricing model change, an invoicing change, an expansion of the platform into the Observability market, and management changes," Nowinski wrote in a note to clients.
"While these changes all had a negative impact initially, they are now starting to have a positive impact as revenue growth (32% [year-over-year] in second-quarter) is starting to normalize," Nowinski added.
The analyst also noted that Splunk ( SPLK ) should started to see increasing operating margin and free cash flow even as revenue growth normalizes. There have been concerns from customers that Splunk's ( SPLK ) pricing model has been a "lingering pain point," there are encouraging signs, especially since Chief Executive Gary Steele, who took over in April, has started to make changes that should reduce the issues from customers and still have a positive impact on revenue growth.
Nowisnki's revenue estimates for Splunk for 2022, 2023 and 2024 are $3.375B, $4.023B and $4.913B, with 2023 and 2024 above consensus estimates due to "the strong feedback we received from resellers on Splunk."
Last week, UBS downgraded Splunk ( SPLK ), noting concerns over increased competition and the pricing of its products .
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Wells Fargo starts coverage on Splunk, sees 30% upside from current levels