Guggenheim raises Confluent stock target to $38, maintains buy rating

On Wednesday, Guggenheim Securities updated their outlook on Confluent Inc (NASDAQ:CFLT), increasing the price target to $38 from the previous $35, while maintaining a Buy rating on the company’s shares. According to InvestingPro data, analyst targets for the stock range from $26 to $42, with the company currently trading at $30.1. The stock has shown strong momentum, delivering a remarkable 49.16% return over the past six months. The firm’s analyst highlighted Confluent’s performance in the recent quarter, noting the company’s cloud revenue growth of 38% year-over-year, which amounted to $8.1 million compared to $12.4 million in the third quarter. While the company maintains impressive gross profit margins of 73.16%, InvestingPro analysis reveals that Confluent is not yet profitable, though analysts predict profitability this year. Get access to 7 more exclusive InvestingPro Tips and comprehensive financial analysis with a subscription. The analyst pointed out that, when adjusted for an estimated one-time benefit in the third quarter, the fourth quarter sequential growth remained stable, exceeding $10 million and reflecting a New Annual Recurring Revenue (ARR) growth of 35% year-over-year.

This growth indicates a significant acceleration in new business compared to the third quarter, which aligns with management’s description of a stable consumption environment. The Net Revenue Retention (NRR) rate was reported at 117% again, with use case expansions noted across large customers. The firm’s analyst believes that this sets a solid foundation for Confluent’s fiscal year 2025 subscription revenue guidance, which was initiated at an increase of 21.5% at the midpoint, surpassing consensus estimates. Additionally, cloud revenue growth is projected to be over 31%, aligning with consensus, and operating margin guidance is expected to be consistent at 6%.

The guidance provided by Confluent is seen as ambitious, requiring approximately 3% incremental subscription revenue growth and 8% incremental cloud revenue growth—both figures exceeding those from fiscal year 2024—as well as over 20% growth in Cloud New ARR, compared to a 15% increase in the previous fiscal year. With a current revenue growth rate of 25.01% and strong financial health indicators, including a comfortable current ratio of 4.24, the company appears well-positioned to pursue these targets. Dive deeper into Confluent’s growth potential with InvestingPro’s exclusive Research Report, part of our coverage of over 1,400 US stocks. However, the analyst is optimistic about the potential product tailwinds Confluent may experience, which could include multiple deployment models, new components in their Connect, Process, Govern offerings, and recent partnerships with major companies such as Databricks and Jio Platforms.

The analyst concluded by expressing confidence in the company’s ability to sustain over 20% growth in the coming years, based on the current trajectory and the introduction of new products and partnerships. This optimism has led to the decision to raise the price target for Confluent stock.

In other recent news, Confluent Inc has been the subject of several analyst upgrades following the release of its favorable fourth-quarter financial results. Scotiabank (TSX:BNS) has raised its price target for Confluent to $35, citing the company’s fiscal year 2025 subscription revenue growth guidance, which exceeded investor expectations. The firm also noted Confluent’s stable Net Revenue Retention and a significant increase in cloud revenues.

Similarly, Mizuho (NYSE:MFG) Securities has increased its price target on Confluent to $38, following the company’s subscription revenue growth which outperformed forecasts. The firm also highlighted the expansion of Confluent’s partnership with Databricks.

Canaccord Genuity also raised its price target on Confluent to $38, citing the company’s strong position in the data-in-motion market and the successful development of its cloud platform. The firm’s analysts have a positive outlook on Confluent’s prospects, expecting a positive risk/reward scenario as the company emerges from a go-to-market transition.

Truist Securities increased the price target to $40 based on Confluent’s strong fourth-quarter performance, particularly noting a surge in cloud revenue. The firm also recognized Confluent’s rapid customer adoption of its Data Stream Processing capabilities.

Lastly, Stifel raised its price target for Confluent to $40, following the company’s recent positive earnings report and steady net retention rate. The firm noted Confluent’s stable consumption trends and growing adoption of its Dedicated Streaming Platform.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.