Morgan Stanley analyst Sanjit Singh maintained a Hold rating on SolarWinds (SWI – Research Report) today and set a price target of $14.00.
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Sanjit Singh has given his Hold rating due to a combination of factors influencing SolarWinds’ current financial and strategic situation. The company is set to be acquired by Turn/River Capital in an all-cash transaction valued at approximately $4.4 billion, which represents a significant premium over its recent stock price. This acquisition, unanimously approved by the board and major shareholders, reflects a fair valuation in line with similar PE-backed M&A deals, though it appears rich when adjusted for growth expectations, given the company’s modest revenue projections.
SolarWinds has shown improved execution recently, with some acceleration in revenue growth and success in transitioning from perpetual maintenance to subscription models. However, its growth is expected to decelerate due to a challenging spending environment, and its exposure to federal contracts adds an element of risk. Additionally, the likelihood of another acquisition offer seems low, considering the fair valuation and alternatives available in the fragmented IT operations market.
Singh covers the Technology sector, focusing on stocks such as Dynatrace, MongoDB, and Datadog. According to TipRanks, Singh has an average return of 1.8% and a 53.25% success rate on recommended stocks.
In another report released today, Wedbush also downgraded the stock to a Hold with a $18.50 price target.