Summit Redstone Starts Atlassian Corp. (TEAM) at Buy; Large Peers Not as Focused on Team Collaboration
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Summit Redstone starts Atlassian Corp. (Nasdaq: TEAM) with a Buy rating and $35 price target.
Analyst Jonathan Kees commented today on the initiation:
Atlassian (TEAM) is unique from the start: from its differentiated, on-line sales model to its no-hassle, no discounting pricing to its high-growth, already profitable and generating cash business. We believe this company continues to invest in its competitive advantages as it grows share especially from larger competitors who are not as focused. Despite TEAM’s high multiples, we believe that its valuation should become more justified as the company grows sales, produces profits, and generates cash along with strengthening its already strong balance sheet (no debt, $743M in cash & investments). We initiate with a BUY and a $35 price target based on 8.9x EV to FY2018 revenues of $769M which is also in line with our DCF calculations. We believe TEAM’s competitive advantages remain viable for the immediate future, TEAM’s large recurring segment (~80% of total revenues) makes for consistency in reporting results, and TEAM should continue its upward trajectory.
TEAM is gaining share from larger peers like IBM, Microsoft, and HP. They are not as focused as TEAM on team collaboration solutions and communications. The TAM is large for TEAM and can increase when targeting users outside of the traditional developers group. Even when excluding potential customers who require traceability requirements and certain compliance standards met, TEAM should be able to continue to grow its customer base. We see open source more of a long term threat, the analyst noted.
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