Shares of Cloudflare (NET) gained by more than 5% in trading on Thursday after four-star rated Goldman Sachs analyst Gabriela Borges gave the stock a double upgrade. The analyst upgraded the stock to a Buy from a Sell and almost doubled its price target to $140 from $77. Borges’ price target implies an upside potential of 22.3% from current levels.
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Borges’ Rationale behind the Upgrade
Borges outlined specific reasons for her change in stance, highlighting Cloudflare’s improved performance and strategic initiatives. She explained that her previous bearish view stemmed from concerns about post-COVID normalization, lackluster revenue growth, and slower advancements in network security and enterprise markets.
However, she noted that the company’s positive free cash flow (FCF) and its ability to outperform the S&P 500 index, combined with optimism about new leadership appointments in 2024, have altered her perspective on the stock’s trajectory.
Borges Pointed Out Key Catalysts for NET Stock
Delving deeper, Borges identified several catalysts expected to drive Cloudflare’s growth. Improved sales and marketing efficiency stands out as a critical factor, with customer acquisition costs anticipated to decrease significantly. Borges projected that a 10% reduction in costs by 2025 and 2026 could boost revenue by 4% and 7%, respectively.
In addition, she highlighted the monetization potential of Cloudflare’s Act III products, which focus on developer services, as a crucial avenue for sustained growth.
Is NET Stock a Good Buy?
Analysts remain cautiously optimistic about NET stock, with a Moderate Buy consensus rating based on nine Buys, eight Holds, and three Sells. Over the past year, NET has surged by more than 40%, and the average NET price target of $104.26 implies a downside potential of 9.1% from current levels.
