Shares of Snowflake (NYSE:SNOW) stock closed higher by over 12% today following an upgrade from JPMorgan analyst Mark Murphy. The analyst maintained a $165 price target but upgraded SNOW from “neutral” to “overweight.”
Murphy is a highly regarded analyst, ranking at 633 out of 7,895 analysts on TipRanks. He has a success rate of 55% and an average return of 10.3% over a one-year period.
JPMorgan’s annual CIO survey contributed towards the upgrade. The survey polled 142 CIOs that in total control more than $100 billion of information technology (IT) spending. The survey showed that Snowflake ranked first “among emerging companies whose vision most impressed respondents.” The company also ranked first in “installed base spending intentions.”
Murphy characterizes Snowflake as rising into “elite territory,” according to Barron’s. Let’s get into the details.
JPMorgan Upgrades SNOW Stock
Analyst Mark Murphy believes that SNOW is highly scalable, elastic and disruptive. The analyst adds that the company’s differentiated solution allows it to engage in a variety of industries, like data engineering and data science. Plus, Murphy believes the company has a total addressable market (TAM) of between $67 billion and $87 billion.
In the long term, Murphy expects Snowflake’s revenue to grow quickly. Furthermore, his price target is based on an 18 times multiple of enterprise value to expected 2023 revenue.
The analyst is “incrementally confident” that Snowflake will soon be able to generate significant free cash flow (FCF). A high FCF figure will create the “initial framework toward FCF-based valuation support.”
Investors already know that Snowflake is a quality company demonstrating high growth. However, its one problem seems to be valuation. Because of this, Murphy adds that the risk-reward is “fairly balanced” at today’s prices.
GuruFocus reports that SNOW stock currently carries a price to sales (P/S) ratio of 31.1 times. The site notes that the industry median P/S ratio is 2.53 times.
Murphy’s upgrade comes after the analyst lowered his price target from $200 to $165 a few weeks ago. That reduction came after he reviewed Snowflake’s Investor Day presentation. The analyst noted that it was hard to see the company outperforming the market in the near term.
Snowflake has an average price target of $198.21 among 30 firms covering SNOW stock. This price target implies upside of about 39% from today’s closing price.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
