UPDATE: Goldman Sachs Downgrades Samsara Inc (IOT) to Neutral

(Updated - June 27, 2022 6:32 AM EDT)

Goldman Sachs analyst Kash Rangan downgraded Samsara Inc (NYSE: IOT) from Buy to Neutral with a price target of $16.00 (from $27.00).

The analyst comments "While we foresee strong demand for IOT’s differentiated platform, we have trimmed our FCF estimates to reflect supply-chain volatility that will call for elevated investments in internally produced hardware devices. Given the current sensitivity to interest rates and profitability, the capital required to mitigate this issue is a growing concern. Samsara’s ability to harvest the data from under-penetrated market opportunities, such as telematics (~50% penetrated, 42% of total ARR) and video-based solutions (< 5% penetrated, 46% of total ARR), given this headwind is another risk. While the OEM partnership base has witnessed expansion resulting in diminishing requirements for internally sourced telematics hardware, IOT notes that few, if any, OEMs are installing dash cameras in vehicles. Given that video-based solutions constitute the largest piece of the ARR pie (while still in the early stages of market adoption), we anticipate continued capital intensity will be necessary to provide the hardware needed to address the demand. This results in a significant delta between operating margins and free cash flow (-18% vs. -36%, respectively, in F1Q23) that is likely to continue as long as supply constraints persist. Even so, upon normalization, pent up demand will compound the pressure since demand growth equates to more required hardware, compressing margins until the capital intensity subsides. We do not expect FCF/ OM to converge until FY27 and therefore remain on the sidelines until a clearer road to profitability emerges."

For an analyst ratings summary and ratings history on Samsara Inc click here. For more ratings news on Samsara Inc click here.

Shares of Samsara Inc closed at $12.51 yesterday.

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