By Sam Boughedda
Wells Fargo started Dynatrace Inc. (NYSE:DT), Splunk (NASDAQ:SPLK) and Datadog, Inc. (NASDAQ:DDOG) at Overweight in separate research notes on Tuesday.
Analysts assigned Dynatrace a price target of $45, Splunk a price target of $95, and DataDog a price target of $120 per share.
In their note on Dynatrace, they said the company has the only enterprise-grade cloud platform capable of supporting modern workloads in a hybrid environment, enabling Dynatrace to "maintain strong win rates in the enterprise market and ultimately drive ARR growth."
"Additionally, we believe the new Application Security and Logging module (Grail) will drive incremental growth going forward, on top of the share gains from the displacement of legacy providers. Finally, we believe Dynatrace can maintain a best-in-class operating margin, while still maintaining consistent investments needed to sustain high revenue growth and product innovation," they added.
On Splunk, the analysts stated it has the "best overall observability platform in the market, and is deeply entrenched with many large enterprise customers, which should enable long-term durable growth and profitability."
"Splunk's revenue growth is also starting to normalize, which should have a positive impact on the valuation. Operating margin is also set to expand as revenue growth begins to normalize," added the analysts.
And finally, writing on DataDog, the Wells Fargo analysts said the thesis is based on four key points.
Firstly, the analysts pointed to Datadog's TAM growing at a 10.3% CAGR from 2021 to 2026. In addition, they said Datadog has several product and pricing advantages, while new product launches in the Security market could enable growth to accelerate. Finally, they explained that Datadog is "one of the few vendors generating revenue growth above 50%, has an operating margin above 15%, and is generating positive Free Cash Flow."
As a result, Wells Fargo believes the company "warrants a premium valuation and puts Datadog in the 'unicorn' status."