On Tuesday, Cloudflare Inc . (NYSE: NYSE:NET) received an updated stock rating from UBS, with the firm upgrading the company from Sell to Neutral. Accompanying the upgrade, UBS also raised the price target on Cloudflare's shares to $82.00, an increase from the previous target of $76.00.
The upgrade comes after a period of observation where the analyst noted Cloudflare's significant total addressable market (TAM), disruptive research and development capabilities, and network advantage. However, the initial Sell rating was given due to concerns that the stock's premium multiple overly factored in near-term AI upside and did not adequately account for go-to-market challenges.
Cloudflare has recently demonstrated positive go-to-market momentum and better secure access service edge (SASE) checks. Additionally, after the company's first-quarter guidance was lower than expected and the subsequent devaluation of its stock, UBS now believes the current share price more accurately reflects the balanced risk/reward for investors.
The firm highlighted that growth headwinds are already priced into the stock, with Cloudflare's shares having decreased by 12% since the first quarter. This decline is in contrast to the IGV, which has seen an increase of 5% in the same period. UBS estimates that Cloudflare's revenue growth will continue at a mid-20% rate, which is consistent with their expectations.
In other recent news, Cloudflare has been the focus of multiple financial firms' analyses. Goldman Sachs maintained a 'sell' rating on Cloudflare with a $68 target, noting the company's strategic initiatives and potential for growth, but expressing caution due to mixed macroeconomic indicators. In contrast, Citi kept its neutral stance with a $90 price target, awaiting further evidence of Cloudflare's execution of strategies to enhance its enterprise credibility.
TD Cowen reiterated a buy rating and $110 target for Cloudflare, expressing optimism about short-term demand trends and the potential for upward adjustment of revenue guidance. On the other hand, RBC Capital reduced its price target to $90 from $108, while maintaining an outperform rating, acknowledging Cloudflare's solidified market stance.
Lastly, Stifel maintained its hold rating but lowered the stock's price target from $90 to $80, following Cloudflare's announcement of an expanded partnership and acquisition at its annual conference.
InvestingPro Insights
Cloudflare Inc. (NYSE: NET) has recently garnered attention with UBS's upgraded stock rating and increased price target. In line with this development, InvestingPro data indicates a robust financial outlook for the company. Cloudflare boasts an impressive gross profit margin of 76.78% for the last twelve months as of Q1 2024, which underscores its efficiency in managing costs relative to its revenue, currently standing at $1.39 billion with a significant growth rate of 31.51%.
While Cloudflare operates with a negative P/E ratio, indicating that it has not been profitable over the last twelve months, analysts remain optimistic. They predict the company will turn profitable this year, with 15 analysts having revised their earnings upwards for the upcoming period. This sentiment is reflected in Cloudflare's market capitalization, which is at a robust $26.71 billion. Additionally, Cloudflare's liquid assets exceed its short-term obligations, suggesting a strong liquidity position.
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