DocuSign (DOCU) Stock Falls 4% After Morgan Stanley Downgrade to Underweight

October 3, 2022 9:05 AM EDT
Get Alerts DOCU Hot Sheet
Price: $42.44 -8.93%

Rating Summary:
    6 Buy, 15 Hold, 4 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 9 | Down: 13 | New: 70
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Shares of DocuSign (NASDAQ: DOCU) are down about 4% in pre-market Monday after Morgan Stanley analyst Josh Baer downgraded to Underweight from Equal-weight.

The downgrade move is a result of an “uncertain, difficult transition ahead” for DocuSign, Baer told clients in a note.

Key risks, such as post-Covid demand normalization, sales force productivity challenges, leadership turnover, are already reflected in DOCU shares (down 64% YTD). However, the analyst sees several other headwinds facing DOCU, including Intensifying competition, e-signature commoditization and pricing pressure.

The combination of these factors makes Baer believe there is an “additional downside and an unattractive risk/reward relative to other SaaS/Future of Work peers.”

“Even if DocuSign can return to a more attractive bull case 20%+ growth profile in the years to come after a successful transition and restructuring, we would not expect to be able to gain confidence in that growth trajectory any time soon given the near-term challenges… Further, when software investors eventually gain more comfort in the overall market, we think investors will return to the highest quality assets first – the amount of disruption, uncertainty and deceleration makes DocuSign more of a wait-and-see restructuring, transition, turnaround story,” Baer added.

The price target goes to $47 per share (down from $73), just shy of the Street-low price target of $44 per share. The slashed price target reflects lowered estimates, which are now slightly below consensus.

This marks the 9th rating downgrade for DocuSign shares since the start of 2022.

By Senad Karaahmetovic

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