JP Morgan anticipates Sophos's billings will reaccelerate
Analysts at JP Morgan reiterated their 'overweight' stance on shares of software maker Sophos, telling clients that the reacceleration in billings over the first quarter of the new fiscal year supported confidence in the medium-term thesis for the stock.
With billings up by 9% to $183m at constant currencies, the analysts said they took confidence "that the worst was over, and that from here Sophos is on a much better track."
"Q1’20 was a key inflection point, underpinning our confidence in the medium term investment thesis," they said to clients in a research note.
On the back of the above growth, they bumped up their estimates by 1.0-3.0% over fiscal years 2020-22 and nudged their target price higher from 480.0p to 490.0p.
The 118% renewal rate seen during the first quarter - a 300 basis point improvement from a year ago - was a "good baseline start to the year" they added, explaining that it should ultimately drive a sequential quarter-on-quarter improvement in billings through fiscal year 2020 helped by its new products, EDR and v17.5 XG Firewall.
From a valuation perspective, they pointed out that the shares were trading at an EV/Sales multiple of 3.7 and 3.4 for 2019 and 2020, respectively and on 20-22 times the shares' enterprise value-to-earnings before interest, taxes, depreciation and amortisation multipl, both of which were at the lower end of their historical ranges.
"This should improve if Sophos executes against our expectations for sequential billings acceleration QoQ throughout FY20."