Street Calls of the Week
On Monday, DA Davidson reaffirmed its Buy rating and $42.00 price target for Confluent Inc (NASDAQ:CFLT), in light of recent market activities and the company’s outlook. The firm’s analysis followed Confluent’s robust fourth quarter of 2024 results and its initial calendar year 2025 guidance that was released on February 11, 2025. After the announcement, Confluent’s stock experienced a significant 25% increase the following day. However, since that spike, the stock has seen a downward trend, falling approximately 30%. Currently trading at $26.36, the stock sits between analyst targets ranging from $30 to $42, with InvestingPro data showing 17 analysts recently revising their earnings estimates upward for the upcoming period.
The decrease in Confluent’s stock value has been attributed to several factors. One is the performance of MongoDB Inc. (NASDAQ:MDB), which often moves similarly to Confluent as both are considered consumption-centric data companies. Despite Confluent not generating revenue from multi-year term licenses and having stable consumption growth commentary, the companies’ stock prices tend to be correlated. Additionally, Confluent’s Investor Day on March 6, 2025, which did not set long-term growth targets, was perceived as lackluster by investors. Moreover, the announced retirement of Confluent’s President of Field Operations, Erica Schultz, has also impacted the stock’s performance. According to InvestingPro analysis, the company maintains strong financial health with a current ratio of 3.99 and more cash than debt on its balance sheet, suggesting operational stability despite market volatility.
Despite these recent challenges, DA Davidson remains optimistic about Confluent’s prospects. The firm highlighted Confluent’s dominant position in the data streaming market, which is valued at over $100 billion. DA Davidson also noted the company’s expanding platform and new products that are leading to significant customer expansions. These factors underpin the firm’s expectation of sustainable 20%+ growth for Confluent, with Cloud revenues forecasted to grow by approximately 31% year-over-year in calendar year 2025 and to constitute about 59% of the company’s Subscription Revenue. InvestingPro data confirms this growth trajectory, showing impressive revenue growth of 24% in the last twelve months and a robust gross profit margin of 73%.
The current market valuation of Confluent, trading at roughly 6.3 times enterprise value to calendar year 2026 revenue, was deemed attractive by DA Davidson, especially in comparison to its peers in the SaaS sector that are trading at approximately 9 times enterprise value to calendar year 2026 revenue. The firm believes this presents a favorable entry point for investors considering the expected growth trajectory. Based on comprehensive analysis available through InvestingPro, which offers detailed valuation metrics and 10+ additional ProTips for Confluent, the stock currently appears undervalued relative to its Fair Value, presenting an interesting opportunity for investors seeking growth potential in the technology sector.
In other recent news, Confluent Inc. has been the focus of several analyst updates following its Investor Day event. Confluent’s financial outlook has seen mixed reactions, with DA Davidson maintaining a Buy rating and a $42 price target, while Loop Capital Markets adjusted its price target to $30, maintaining a Hold rating. Analysts from Truist Securities and JMP reaffirmed their Buy and Market Outperform ratings, respectively, both with a $40 price target, highlighting confidence in Confluent’s strategic direction and growth potential. The company’s recent amendments to its Executive Officer Change in Control/Severance Benefit Plan have drawn attention, with JMP analysts suggesting possible acquisition interest based on historical trends in similar scenarios.
Confluent’s Investor Day presentations emphasized its strong position in the data streaming platform market, especially within the artificial intelligence (AI) sector. The company has outlined a strategic roadmap focusing on analytical workloads and partnerships, notably with Databricks, to enhance its market presence. Despite Erica Schultz’s announced departure as President of Field Operations, Confluent’s leadership team, including CEO Jay Kreps, remains a key strength, according to Citizens JMP. Financially, Confluent aims for over 25% non-GAAP operating margin and free cash flow margin, as noted by Loop Capital.
The firm’s strategic plans and product innovations, such as Tableflow and the bring your own cloud (BYOC) product, are seen as pivotal in capitalizing on the growing AI market. Analysts continue to monitor Confluent’s developments closely, with the company’s financial targets and strategic initiatives being crucial points of interest for investors.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.