Shares of Snowflake (NYSE:SNOW) the stock closed more than 12% higher today on an upgrade from JPMorgan analyst Mark Murphy. The analyst maintained a price target of $165 but moved SNOW from “neutral” to “overweight”.
Murphy is a highly rated analyst, ranking 633 out of 7,895 analysts on TipRanks. It has a success rate of 55% and an average return of 10.3% over a period of one year.
JPMorgan’s annual CIO survey helped with the upgrade. The survey interviewed 142 CIOs who collectively control more than $100 billion in information technology (IT) spending. The survey showed that Snowflake ranked first “among emerging companies whose vision most impressed respondents”. The company also ranked first for “installed base spending intentions.”
Murphy characterizes Snowflake as rising into “elite territory,” according to Barrons. Let’s get into the details.
JPMorgan improves snow supply
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, such as data engineering and data science. Additionally, 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 rapidly. Additionally, its price target is based on a multiple of 18x enterprise value over projected 2023 revenue.
The analyst is “increasingly confident” that Snowflake will soon be able to generate significant free cash flow (FCF). A high FCF figure will create the “initial frame to FCF-based evaluation support”.
Investors already know that Snowflake is a quality, high-growth company. However, its only problem seems to be valuation. Because of this, Murphy adds that the risk-reward is “pretty balanced” at today’s prices.
GuruFocus reports that SNOW’s stock currently has 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. The cut came after reviewing Snowflake’s presentation at Investor Day. The analyst noted that it was difficult to see the company outperform the market in the short term.
Snowflake has an average price target of $198.21 among 30 companies covering SNOW stocks. This price target implies an upside of approximately 39% from today’s closing price.
At the date of publication, Eddie Pan did not hold (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.