Qualys shares target cut to $140 on demand concerns

On Wednesday, TD Cowen adjusted its outlook on Qualys Inc (NASDAQ: NASDAQ:), a cybersecurity firm, by lowering the price target to $140 from $170 while maintaining a Hold rating on the stock. The revision follows Qualys’s second quarter 2024 results, which revealed a decrease in demand for the company’s standalone Vulnerability Management (VM) core offering.

The company’s recent earnings report indicated a concerning trend, with billings growth turning negative at -2% year-over-year. This performance was notably below the market’s expectation of a positive 8% year-over-year growth. In light of these results, management has revised the full-year 2024 revenue forecast downward by 100 basis points, now anticipating an 8% year-over-year growth rate.

The reduced revenue outlook and the observed decline in market share have prompted TD Cowen to reassess the investment potential of Qualys’s shares. The firm’s analyst cited the accelerated softening of demand for Qualys’s core product and the pace of market share loss as key factors influencing the decision to lower the price target.

The analyst’s statement highlighted the challenges faced by Qualys: “2Q24 results showed accelerated demand softening for QLYS’s standalone VM core offering by posting a negative billings growth of -2% y/y, significantly falling short of the consensus +8% y/y. Mgmt cut its FY24 revenue outlook by 100bps to an 8% y/y growth rate, which we deem as not yet derisked given the pace of market share decline.”

The revision to the price target reflects concerns over the company’s valuation, with the analyst pointing to “multiple contraction” as a reason for the adjustment. Despite these challenges, the Hold rating suggests that TD Cowen believes the stock may still have some merit for investors, albeit with tempered expectations for growth.

In other recent news, cloud security firm Qualys has been the subject of several significant developments. The company reported an 8% year-over-year increase in revenue for the second quarter, despite a 2% decline in current calculated billings. Analysts at Canaccord Genuity have adjusted their price target for Qualys to $160 from $220, maintaining a Buy rating. Similarly, RBC Capital and JPMorgan have also revised their price targets to $150 and $125, respectively, due to recent financial outcomes and future projections.

Qualys has been making strides in its cybersecurity offerings, launching TruRisk Eliminate, a product aimed at enhancing vulnerability management. The company is also planning to expand its GovCloud platform into more federal agencies and initiate new customer acquisition campaigns. These are all recent developments and investors should monitor further updates.

Furthermore, Qualys anticipates an 8-10% increase in full-year revenue for 2024, projecting figures between $601.5 million and $608.5 million. Canaccord Genuity projects that Qualys will have better growth prospects in the coming years as it continues to develop its cybersecurity platform. However, these projections are analyst opinions and should be considered as such.

InvestingPro Insights

In the context of TD Cowen’s recent adjustment to Qualys Inc’s outlook, a closer examination of the company’s financial health and market performance using InvestingPro data can provide additional insights. Qualys boasts a robust gross profit margin of 81.5% over the last twelve months as of Q2 2024, indicating strong cost management and profitability in its operations. Despite the recent dip in demand for its core offering, the company’s financials reflect a healthy 10.83% revenue growth during the same period.

However, the market has reacted to the company’s challenges, with Qualys’s stock experiencing a notable decline of over 8% in the past week, reflecting the immediate investor sentiment. This is compounded by a 30.15% decline year-to-date, suggesting that the market is significantly reevaluating the company’s prospects.

For investors looking for potential value, Qualys is trading at a Price/Earnings (P/E) ratio of 26.97, which, when considered in light of its near-term earnings growth, positions the stock at a low P/E ratio. This could indicate a potential undervaluation relative to its earnings potential. Additionally, Qualys holds more cash than debt, providing a cushion and financial flexibility in a challenging market environment.

Investors interested in a deeper analysis can find more InvestingPro Tips for Qualys, including insights on valuation multiples and profitability forecasts, at Investing.com. Currently, there are 13 additional InvestingPro Tips available, offering a comprehensive view of the company’s financial status and market position.

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