Street Calls of the Week
On Friday, Morgan Stanley (NYSE:MS) analysts upgraded Clearwater Analytics Holdings (NYSE:CWAN) stock from Equalweight to Overweight and increased their price target from $30.00 to $34.00. The upgrade reflects the firm's positive outlook on the company's recent acquisition of Infusion, which they believe is a game-changer for Clearwater, positioning it as a leading software provider in the investment management industry.
The analysts emphasized that the acquisition is expected to enhance Clearwater's cross-selling capabilities and pricing power, a trend that began to take shape in the previous quarter. They anticipate a compound annual growth rate (CAGR) of approximately 39% in EBITDA from 2024 to 2026 based on their projections.
Clearwater's acquisition strategy is seen as transformational, potentially leading to significant accretion without relying on gross margin efficiencies or revenue synergies. The firm's analysts are confident that the incremental gross margins should be higher post-acquisition due to expected lower customer acquisition costs (CAC) under the combined entity.
The company's customer base is described as sticky and defensible, with a pressing need to adopt and expand Clearwater's offerings to achieve geographic and asset class growth. This need is expected to translate into substantial pricing power for Clearwater Analytics Holdings.
Lastly, Morgan Stanley's analysts believe that the adjusted multiple, which takes into account the pro forma growth, aligns with the growth and margin profile of Clearwater following the acquisition. They consider the new price target to be in line with the combined entity's future financial performance.
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