Splunk (SPLK, $122.79) gets rating boost and price target hike from Morgan Stanley

Splunk got a rating upgrade from analysts at Morgan Stanley, on the company’s shift in business strategy and its cash flow strength.

Morgan Stanley analyst Keith Weiss raised his rating on the big data/analytics software company’s stock to overweight from equal weight.  Weiss also hiked his one-year price target on the shares to $169 from $140.

The outlook boost is based on what the analyst perceives as better clarity in the company's shift toward a recurring revenue model. Weiss indicated that the shift likely suggests a durable 25%+ annual recurring revenue growth trajectory, with FY23 free cash flow approaching $1billion – and therefore looks undervalued at current levels, according to the analyst.  He mentioned that Splunk currently trades at a ~30% valuation discount relative to peers.

Splunk has been moving its business away from long-term software licensing and instead focusing more toward subscription-based products. Last month, the company unveiled some updates to its Data-to-Everything platform.