Freshworks stock target cut to $19 by Oppenheimer

On Wednesday, Oppenheimer analyst Brian Schwartz revised the price target for Freshworks Inc (NASDAQ:FRSH) to $19.00, down from the previous $24.00, while maintaining an Outperform rating on the company's shares. The company, currently trading at $12.08, has seen 10 analysts revise their earnings estimates upward for the upcoming period, according to InvestingPro data. Schwartz suggests that Freshworks presents a favorable risk/reward scenario as the company's Net Revenue Retention (NRR) appears to have reached its lowest point, margins are on the rise, and the stock's valuation is compelling due to its growth and cash generation capabilities.

Despite the positive outlook, Schwartz notes that trends in the Small and Medium Business (SMB) market are showing signs of weakness. The company maintains impressive gross profit margins of 84.27% and has demonstrated solid revenue growth of 20.79% over the last twelve months. Additionally, while the perception of Freshworks' customer experience (CX) business remains negative among investors, which continues to weigh on the stock, the company's guidance has been set with conservative expectations, assuming that the CX business will not see improvement and will perform below market growth rates.

Schwartz points out that software investors are currently adopting a defensive strategy due to market volatility and the increasing macroeconomic and geopolitical uncertainties. Nevertheless, investors are on the lookout for undervalued stocks that have limited downside, sustainable growth at a reasonable price, and defensible competitive advantages. According to Schwartz, Freshworks fits these investment criteria well. InvestingPro analysis reveals two key strengths: the company holds more cash than debt on its balance sheet and maintains liquid assets exceeding short-term obligations, with a healthy current ratio of 3.1.

Moreover, the analyst believes that the recent market correction has been excessive concerning Freshworks' sales and cash flow multiples, which are now at five-year lows. This market overreaction has led to the adjusted price target, reflecting the broader multiple compression within the group. InvestingPro's Fair Value analysis suggests the stock is currently undervalued, with additional ProTips and detailed financial metrics available in the comprehensive Pro Research Report. Schwartz's commentary underscores the potential that Freshworks holds for investors, despite the current challenges in the market and the company's sector.

In other recent news, Freshworks Inc has seen a series of positive analyst updates following its strong financial performance. Piper Sandler raised its price target for Freshworks to $24, highlighting the company's impressive annual recurring revenue (ARR) growth in its Experience segment, which reached over $400 million. This was supported by a notable 20%+ organic growth and a 20%+ operating margin. Similarly, Oppenheimer increased its price target to $24, citing Freshworks' robust fourth-quarter results that exceeded consensus expectations, particularly in billings and margin growth.

Cantor Fitzgerald also lifted its price target to $22, pointing out Freshworks' strategic success in the mid-market and enterprise sectors, which now account for over 60% of its ARR. The analyst noted that Freshworks is trading at a valuation significantly lower than its competitors, suggesting room for growth. Meanwhile, Scotiabank (TSX:BNS) raised its target to $19, observing Freshworks' 17% organic billings growth and the potential for acceleration in its Customer Experience segment.

Needham maintained its Buy rating with a $25 target, expressing confidence in Freshworks' strategic direction and expansion into new enterprise service management sectors. The firm's meetings with Freshworks' executives highlighted the company's stable net revenue retention rate and promising partnerships, such as the one with Unisys (NYSE:UIS). These developments collectively underscore Freshworks' ongoing efforts to enhance its market position and product offerings, as well as its favorable outlook among analysts.

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