BofA/Merrill Lynch Downgrades Informatica (INFA) to Underperform
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BofA/Merrill Lynch downgraded Informatica (NASDAQ: INFA) from Neutral to Underperform with a price target of $33.00 (from $37.00) following Q3 results which highlight several moving pieces.
Analyst Kash Rangan cites several reasons that make it difficult to be positive: 1) Broad trend of spending shifting to Hadoop, Cloud, Big Data, combined with more IT buyers consuming software as a service may be diverting budgets from legacy vendors such as INFA. 2) Revs growth of ~10% in 2014 is still well below the 20%+ expectation of investors. INFA’s long-term goal is 17% growth, inline with long-term historical performance. In our view, the 17% goal becomes believable if INFA could grow licenses in mid to high teens, we model 3% for 2014E vs organic license growth of 4% over the last couple of years. 4) Despite strong demand for subscriptions-based products, sales investments do not seem to be paying off in verticals such as financials. Increasing shift to subscription revs and increased spend to drive new products/go-to-market initiatives should keep a lid on margins.
The firm cut FY 2014 EPS from $1.55 to $1.54 and bumped FY 2015 EPS from $1.90 to $1.91.
Shares of Informatica closed at $32.83 yesterday.
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