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On Friday, TD Cowen's analyst Derrick Wood adjusted the price target for Twilio (NYSE:TWLO) shares, increasing it to $120 from the previous $85, while keeping a Hold rating on the stock. According to InvestingPro data, Twilio's stock is currently trading at $112.48, with analyst targets ranging from $50 to $155, reflecting diverse market opinions. Notably, 24 analysts have recently revised their earnings expectations upward for the upcoming period.
Wood anticipates significant updates from the company's upcoming Analyst Day on January 23, including insights into operational structure, go-to-market (GTM) strategy, and product innovation. The Analyst Day is expected to provide a detailed guide for fiscal year 2025 and medium-term expectations, as well as preliminary fourth-quarter results, which are predicted to be robust.
Twilio's stock has seen a significant uptick, rising approximately 60% since the third-quarter earnings release, with InvestingPro data showing an impressive 93.31% return over the past six months. The company maintains a "GREAT" overall financial health score of 3.1 out of 5, supported by strong cash flow metrics. Currently, the shares are trading at around 22 times the expected enterprise value to free cash flow (EV/FCF) for the calendar year 2025.
This surge is attributed to a return to double-digit growth in the third quarter and confidence in Twilio's potential for further margin and efficiency improvements without compromising growth prospects. Additionally, the introduction of generative AI technology is seen as a potential catalyst for new growth avenues.
The analyst pointed out that while the Analyst Day is likely to be received positively and will offer valuable strategy and target updates, there has been substantial tactical long positioning leading up to the event. Wood also mentioned that the guide for fiscal year 2025 might still show single-digit growth and that the opportunities presented by AI might take considerable time to materialize.
With the fundamentals appearing more balanced, the recent re-rating of the stock's valuation is believed to have already accounted for optimistic scenarios. This re-rating places Twilio's FCF multiple above that of Adobe (NASDAQ:ADBE) and just two turns below Workday (NASDAQ:WDAY).
In light of these developments, the price target has been raised to $120, which reflects approximately 23 times the projected EV/FCF for the calendar year 2025. Despite the positive outlook for the upcoming Analyst Day, the Hold rating has been maintained. InvestingPro analysis suggests Twilio is currently undervalued, with additional insights available in the comprehensive Pro Research Report, which provides deep-dive analysis of the company's fundamentals, valuation metrics, and growth prospects.
In other recent news, Twilio Inc. has been the focus of several positive developments. The company's Q3 2024 revenue saw a 10% year-over-year increase, reaching $1.13 billion, with a substantial contribution of $1.06 billion from its Communications segment. Analysts from Tigress Financial Partners and Monness, Crespi, Hardt upgraded Twilio's stock to Buy, setting a new price target of $135.00. Additionally, Wolfe Research raised its price target for Twilio to $155, maintaining an Outperform rating.
Twilio's Chief Legal Officer, Dana Wagner, has announced his resignation, effective from January 1, 2025, with no successor named yet. In terms of product development, Twilio has launched a public beta release of Linked Audiences for Amazon (NASDAQ:AMZN) Redshift, a feature aimed at boosting customer engagement. This development has contributed to a 35% year-over-year increase in Twilio Segment's growth in the AWS Marketplace.
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