Citi cuts Rapid7 stock price target to $44, maintains Buy rating

On Thursday, Citi analysts revised their outlook on Rapid7 (NASDAQ:RPD) shares, lowering the price target to $44.00 from the previous $46.00, while still affirming a Buy rating on the stock. According to InvestingPro data, the company currently trades at a P/E ratio of 49.1x and maintains a solid gross profit margin of 70.7%, suggesting strong operational efficiency despite market challenges. The adjustment follows Rapid7’s fourth-quarter performance, which showed signs of stabilization after a period marked by execution challenges and organizational changes. Despite the company meeting low expectations with its annual recurring revenue (ARR), the reported double quarter-over-quarter growth in new net ARR to $17 million and a better-than-expected operating margin and free cash flow margin were noted.

The reaffirmed forecast for fiscal year 2025 suggests modest mid-single-digit percentage year-over-year growth in ARR, which is considered acceptable under current conditions. With revenue growth of 10% over the last twelve months and an impressive five-year revenue CAGR of 26%, the company has demonstrated consistent expansion. However, analysts at Citi expressed concerns over Rapid7’s decision to increase research and development investments, especially after a calendar year 2024 that had already seen significant spending in this area. InvestingPro analysis reveals the company maintains a "GOOD" overall financial health score, with particularly strong marks in growth metrics.

The report acknowledges the reasoning behind the company’s lower revenue, operating margin, and free cash flow projections, which include a strategic shift away from professional services and focused growth in the detection and response (D&R) and managed detection and response (MDR) segments. Moreover, the implementation of lower-cost labor for security operations center (SOC) mandates was mentioned as a factor. Despite these strategic moves, analysts believe that the overall weak financial optics could heighten existing fears regarding competition, pricing pressures, and the potential for secular decline in the core vulnerability management market.

Despite the challenges, Citi’s analysis suggests that Rapid7’s current valuation is attractive, factoring in the potential for activist investor engagement. The lowered price target reflects the bottom end of the company’s outlook but does not entirely diminish the stock’s appeal, as the analysts see the current valuation as an opportunity, given the stock’s low price and the possibility of activist involvement. InvestingPro analysis indicates the stock is currently undervalued, with additional ProTips and comprehensive valuation metrics available to subscribers through the platform’s detailed Pro Research Report, which offers deep-dive analysis of Rapid7 among 1,400+ top US stocks.

In other recent news, cybersecurity firm Rapid7 has seen significant developments. The company’s Q4 earnings report showed revenue of $216.26 million, surpassing analysts’ estimates of $212.17 million, marking a 5% year-over-year growth. However, the adjusted earnings per share were slightly below the expected $0.50, coming in at $0.48.

Jefferies, an investment banking firm, recently adjusted its outlook on Rapid7, reducing the price target from $50.00 to $45.00, but maintained a Buy rating on the stock. The adjustment was made following Rapid7’s Q4 annual recurring revenue (ARR) growth, which aligned closely with consensus estimates.

Rapid7’s guidance for 2025 ARR growth is within the expected range of 4-6% year-over-year. However, the company’s revenue projection for 2025 fell short of consensus by $17 million, attributed to a decrease in professional services as the company shifts its focus. The company’s non-GAAP operating margin guidance for 2025 is approximately 14.8% at the midpoint, lower than the consensus expectation of 19.6%, due to planned investments.

While the company’s guidance for Q1 2025 and full-year 2025 fell short of analysts’ projections, Jefferies analysts maintain a positive stance on Rapid7, citing potential for future growth. These are among the recent developments for the company.

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