BTIG Downgrades SentinelOne Inc (S) to Neutral, 'Too Hard to Defend'
BTIG analyst Gray Powell downgraded SentinelOne Inc (NYSE: S) from Buy to Neutral.
The analyst comments "S’s Q1/April print was disappointing on multiple levels and quite frankly hard to dissect. As a result, we are downgrading the stock to a Neutral from Buy. Most notably, S grew delivered ARR of $564MM / +75% y/y vs. our estimate of $591MM /+74% (Street $594MM). The $27MM shortfall relative to our model was entirely due to a reclassification that reduced the starting point of ARR in FQ4. That said, we think the quarterly result was below buy-side expectations. Furthermore, the company reduced its FY24 ARR growth outlook to mid-30’s from 47% previously. Management called out multiple issues spanning deal slippage / execution, a weak macro, and lower usage on consumption products (data lake and Scalyr). We would like to say that the issues facing S are just a weak macro. But given the degree of the Q1 miss after the company initially guided in mid-March and the magnitude of the guide down, it simply feels like something else is at play here. Admittedly the stock appears cheap, but concerns on increased competition from Microsoft (MSFT, Not Rated) and CrowdStrike (CRWD, Buy, $188 PT) are going to be hard to shake near term. And since we are cutting our FY24 / FY25 revenue estimates by 6% and 18%, respectively, the narrative is too hard for us to defend. At just over 5.0x ’24E EV/sales on our newly revised estimates, valuation is very reasonable for what should be a 30% growth story. But we need to see a couple of quarters of stable execution to gain more confidence in trend lines. And, unfortunately, we feel a Neutral rating is more appropriate at this point in time."
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Shares of SentinelOne Inc closed at $20.72 yesterday.