Citi has resumed coverage on HashiCorp Inc (NASDAQ: NASDAQ:HCP) with a neutral rating and a new price target of $35.00, following a period of suspended ratings.
The updated price target comes after the firm reviewed HashiCorp's financial results for the second quarter of fiscal year 2025, which showed healthy growth exceeding Citi's earlier projections.
HashiCorp's recent performance has led Citi to increase its estimates for the company's revenue, profitability, and free cash flow.
The revised outlook is also influenced by the impending acquisition of HashiCorp by IBM (NYSE:IBM), a deal that has already received approval from HashiCorp shareholders and is anticipated to be finalized by the end of calendar year 2024.
Citi's analysis applies an enterprise value to sales and growth (EV/S/G) ratio of approximately 0.41 to the revised compound annual growth rate (CAGR) of around 18% for the calendar years 2024 to 2027. This calculation results in an enterprise value to sales (EV/S) multiple of roughly 7 times for the year 2027, leading to the $35 price target. This target aligns with the proposed acquisition price.
Despite the Federal Trade Commission (FTC) issuing a second request for information regarding the acquisition, Citi notes that it sees little chance of another bidder emerging or the deal falling through.
The analyst believes that HashiCorp's transition to a more strong business model and its goal of returning to 20% revenue growth are more likely to be achieved as part of IBM, which offers a larger platform with established go-to-market capabilities and complementary portfolio offerings.
In other recent news, HashiCorp's earnings and revenue for the fiscal second quarter surpassed analyst estimates. The company demonstrated a 15% year-on-year increase in revenue, reaching $165.1 million, significantly outperforming the projected $157.25 million.
Despite this, HashiCorp reported a loss of $0.13 per share, falling shy of expectations for breakeven earnings. HashiCorp's customer base also expanded, with the company's quarterly subscription revenue from their Cloud Platform notably increasing.
KeyBanc maintained its Sector Weight rating on HashiCorp, following these financial results and amidst the ongoing acquisition process by IBM. The acquisition, approved by HashiCorp stockholders and expected to conclude by the end of 2024, is currently pending regulatory approvals.
InvestingPro Insights
As Citi resumes coverage on HashiCorp Inc (NASDAQ: HCP) with a neutral stance and a price target of $35.00, it's instructive to consider some key metrics and insights from InvestingPro. With a market capitalization of $6.89 billion and a notable gross profit margin of 82.08% in the last twelve months as of Q2 2025, HashiCorp demonstrates a strong ability to retain earnings from sales. This impressive margin is a testament to the company's operational efficiency and pricing power.
InvestingPro Tips indicate that analysts have a positive outlook on HashiCorp's profitability, with three analysts revising their earnings upwards for the upcoming period. Additionally, the company is praised for holding more cash than debt on its balance sheet, suggesting a solid financial position that may support strategic initiatives and buffer against market volatility. Interestingly, while the company has not been profitable over the last twelve months, analysts predict profitability this year, aligning with the growth trajectory that Citi anticipates.
For readers seeking a deeper analysis, InvestingPro offers additional tips on HashiCorp, providing a comprehensive view of the company's financial health and market potential. With a price currently trading near its 52-week high and a large uptick over the last six months, potential investors might weigh these insights against the broader market context and the upcoming acquisition by IBM.
These InvestingPro Insights, along with a full list of 11 additional tips available on the platform, can help investors make more informed decisions and stay ahead of market trends.
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