On Wednesday, Piper Sandler shifted its stance on Pure Storage (NYSE:NYSE:PSTG) stock, upgrading the company's rating from Neutral to Overweight. The firm also increased its price target to $76.00, up from the previous $56.00.
The upgrade follows Pure Storage's third fiscal quarter results, which exceeded expectations in traditional sales, although the company faced challenges in lead metrics. The company, currently valued at $17.5 billion, has delivered impressive returns with a 50% gain year-to-date according to InvestingPro data.
The analyst cited a significant design win with a top-4 cloud hyperscaler as a key reason for the upgrade, suggesting that this partnership could bring in over $500 million in opportunities by calendar year 2026.
The potential for additional hyperscaler clients and a shift in focus towards Cloud and AI, rather than Storage-as-a-Service (STaaS), are seen as positive developments for the company.
InvestingPro analysis shows the company maintains strong financial health with a "GREAT" overall score, supported by robust revenue growth of 8.9% and solid cash flow generation.
Pure Storage's unique offerings were also highlighted, particularly a large software win that demonstrates the company's competitive edge. Additionally, the growing adoption of flash storage, especially for AI use cases among cloud players, was noted as a factor in the company's favor.
The analyst pointed out that the pause in the transition to STaaS has removed a significant revenue headwind for Pure Storage. This change, along with the potential for further estimate increases and multiple expansion, informed the decision to raise the price target.
The new target is based on 25 times the projected calendar year 2026 EBITDA, with a bull-case scenario that could see the stock reach $104 per share.
Based on InvestingPro's Fair Value analysis, the stock appears overvalued at current levels, though it maintains strong fundamentals with more cash than debt on its balance sheet. Subscribers can access 10+ additional ProTips and comprehensive valuation metrics in the Pro Research Report.
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