Oppenheimer analyst Ittai Kidron reiterated an Outperform rating on Snowflake Inc
The analyst highlighted Snowflake as one of his top picks for 2024.
Kidron sees multiple tailwinds that can deliver upside for the year and next year's outlook.
The tailwinds included an improving macro environment, less intense cloud optimization activities that can drive consumption growth, expanding market presence within the Federal vertical, increasing compute consumption with upcoming new products, and growing adoption of AI/ML capabilities.
While shares have bounced back in 2023 (+46%), the analyst noted that they do not fully capture the upside to expectations and are reasonably priced when accounting for ~30% top-line growth and 27% free cash flow margins.
Snowflake trades at 14.6x EV/CY25 Sales, well above the peer group average of 7.1x, but Kidron noted that this is justified given the high revenue growth rate and FCF margin. As such, the analyst views the risk-reward as favorable, sees limited risk to numbers, and applies an appropriate valuation of ~18x EV/CY25 Sales for a price target of $240.
Kidron sees good support for improving consumption, with room for upside on modest improvement in macro and growing workloads. He also expects expanding AI/ML capabilities to incentivize customers to build apps on Snowflake, driving a long tail of growth.
The analyst projected Q4 revenue and EPS of $757.4 million and $0.14, respectively.
Price Action: SNOW shares traded lower by 5.07% at $188.91 on the last check Tuesday.
