Michael Vi
BofA Securities started coverage on PagerDuty's (NYSE:PD) shares with a Buy rating and a $30 price target.
The analysts said that PagerDuty is a market-leading incident management software platform which helps businesses troubleshoot everything from cyber-attacks to computer glitches. Recent macro-related challenges have pressured revenue growth and the stock trades at a 43% discount to infrastructure software peers. However, they think the company is poised to outperform as it improves execution and accelerates growth over the next one year.
The analysts noted that turnaround story creates an attractive CY'2024 setup. With PagerDuty's (PD) shares down 15% year-to-date (versus +42% for Nasdaq) from slowing billings growth due to macro headwinds, they think this creates an attractive 2024 catchup setup from — a compelling turnaround story powered by improved growth and profitability potential (+12 poitnts Free cash flow, or FCF, margin expansion in FY24); and right sizing of operations throughout CY'2023, and new c-suite additions which levels up the team to execute the strategy to steer better revenue growth, efficiencies and higher cash flow.
In addition, the analysts said that their bottom-up total Addressable Market, or TAM, analysis suggests a $23B Market (TAM) (<2% penetration) for 2023. As the pace of digital transformations, or DX accelerates, the TAM can expand to $32B by 2028.
The analysts added that their checks and prior work into the DevSecOps category suggested that PagerDuty is viewed as a leading platform with an attractive subscription-based model and upsell/cross-sell opportunities. With the BofA house view of a soft landing in 2024, the analysts believe macro headwinds should calm, allowing the company's full growth potential to be seen.
The analysts noted that PagerDuty's (PD) valuation is inexpensive and it has an attractive risk-reward profile.
Earlier this month, TD Cowen downgraded PagerDuty's (PD) shares to market perform from outperform and cut the price target to $23 from $29, noting that macro pressures are not getting any easier.
PagerDuty (PD) has a Buy rating at Seeking Alpha's Quant Rating system, which consistently beats the market. Meanwhile, the Seeking Alpha authors' average rating is Hold and the average Wall Street analysts' rating is more positive with a Buy.