On Wednesday, Citi maintained a Neutral rating on Okta, Inc (NASDAQ:OKTA) but increased the price target to $95 from $90. According to InvestingPro data, Okta, with a market capitalization of $13.88 billion, currently appears undervalued based on its Fair Value analysis.
The adjustment follows Okta's reported cRPO (calculated remaining performance obligations) beat, which outperformed its recent quarters, and a significant year-over-year (YoY) increase in RPO (remaining performance obligations) by 19%. This marks the fourth consecutive acceleration, largely driven by large deals, particularly with the U.S. Federal government—a sector where Okta's peers have recently struggled.
The company's in-quarter and FY25E (fiscal year 2025 estimated) operating margin (OPM) and free cash flow margin (FCFM) also surpassed expectations, overshadowing concerns.
InvestingPro data reveals impressive gross profit margins of 75.82% and strong revenue growth of 18.74% over the last twelve months. Two of several InvestingPro Tips highlight the company's solid financial position, including strong liquid assets and expected profitability this year. However, the analyst noted that the number of new net logos reached historical lows and the net retention rate (NRR) saw a 2-point decline quarter over quarter. The report suggests that Okta still has work to do in terms of cross-selling, up-selling, and go-to-market (GTM) productivity.
Despite these challenges, Citi anticipates a potential relief rally in Okta shares due to the inline guidance for cRPO growth at approximately 9% YoY for F4QE (fourth-quarter estimated) and mixed preliminary FY26E (fiscal year 2026 estimated) revenue projections. The FY26E revenue is expected to be around 7% YoY below forecasts, with OPM and FCFM in line with expectations.
Citi highlighted Okta's successful public-sector specialization and positive early indicators from its hunter-farmer efforts. The company is also preparing new persona-based GTM specialization. These self-help initiatives are anticipated to reinvigorate the top line in FY26E. Nevertheless, the analyst expressed caution, citing profitability concerns and a need for evidence of growth inflection and new SKU (stock keeping unit) monetization before adopting a more constructive stance. The price target increase to $95 reflects a nominal upside in free cash flow.
For a comprehensive analysis of Okta's financial health (currently rated GOOD by InvestingPro), including exclusive insights and additional ProTips, investors can access the detailed Pro Research Report, part of the premium analysis available for over 1,400 US stocks.
In other recent news, Okta, Inc. has been the focus of several analyst updates following its announcement of stronger than anticipated results. BMO Capital Markets raised its target on Okta to $105, maintaining a Market Perform rating. Notably, Okta's third-quarter cRPO exceeded estimates by $74 million or 4%, with the fourth-quarter cRPO guidance set $26 million above consensus. The initial revenue guidance for fiscal year 2026 indicated a 7% year-over-year growth, aligning with buy-side expectations.
KeyBanc maintained a Sector Weight on Okta, expressing a positive outlook on the company's potential role as a consolidator of identity services. However, caution was advised due to potential disruptions from imminent go-to-market strategy changes. Other firms including Needham, Scotiabank (TSX:BNS), Truist Securities, and Canaccord Genuity also adjusted their price targets on Okta, reflecting a cautiously optimistic stance on Okta's growth potential and operational strategy.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.