CrowdStrike Price Target After Harsh Downgrade Drives Dip
The cybersecurity name traded lower after an influential Wall Street analyst downgraded it.
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Shares of cybersecurity industry leader and Sarge-fave CrowdStrike Holdings CRWD traded lower on Monday morning. This came in response to a downgrade on Sunday night by Piper Sandler high-end, five-star rated (by TipRanks) analyst Rob Owens.
Owens cut CrowdStrike from "Overweight," which is a buy-equivalent rating, to "Neutral." Neutral is considered to be "hold-equivalent."
Owens left his target price at $505. The stock had closed at $514.10 on Thursday afternoon, up 3.63% for the day. Owens had increased that target price from $400 to $505 back on June 4. The stock closed with a $460 handle that day. Owens does not see a near-term scenario that would permit the firm to meaningfully outperform current estimates. However, Piper maintained its favorable view on the firm and its longer-term prospects.
Au Contraire...
Two other highly-ranked sell-side analysts apparently feel differently. Last Thursday, Dan Ives of Wedbush, whose rating at TipRanks is back up to 4.5 stars out of five after a number of his names have made Q2 comebacks, increased his target price for CrowdStrike from $525 to $575. Ives reiterated his "buy" rating as well.
Late in the week prior, Fatima Boolani of Citigroup, who is not only rated at five stars by TipRanks, but is one of the most highly-rated analysts among those with five stars, increased her target price for CRWD from $420 to $575, while reiterating her "buy" rating. TipRanks rates Boolani as the 226th most accurate Wall Street analyst out of the 9,710 that they rate. Ives is at number 1,027. Owens, however, is rated better than both of them at number 80.
Earnings
CrowdStrike, with which readers know I have had a love/hate/love relationship with over the years, will report the firm's second quarter financial results on August 26, so we're still more than six weeks out. Currently, Wall Street is looking for an adjusted EPS of $0.83 on revenue of $1.15 billion. This would reflect year-over-year sales growth of 19.3%. This would be the slowest pace of revenue growth for the firm maybe ever but is also expected to be a low point for the pace of sales.
Expectations are for a re-acceleration in the pace of sales over the next two quarters that leaves full-year growth at more than 21%. The adjusted EPS print would be down from the year-ago comp of $1.04, but in line with the firm's own guidance. Readers should keep in mind that the firm's annual recurring revenue (ARR) is now up to $4.4 billion and that in early June, the firm announced the authorization of an up to $1 billion share repurchase program. Of the 42 sell-side analysts that I can find that cover CRWD, 31 have increased their earnings estimates for the second quarter since it began, while 11 have decreased their Q2 earnings estimates.
The Chart
The stock is down a rough 2.25% on Monday morning as I write this. If an investor is uncomfortable with the risk, then by all means, reduce exposure. That's almost rule number one in risk management. That said, if investors are in this name with me, this go around, we are up 71.2%, so I'm not that worried. At least not yet.
As for those naysayers who say that human traders can't beat Wall Street and can't beat passive investors, we do, regularly. The Sarge-folio is up 36.38% year to date versus an S&P 500 that's up 5.17% and a Nasdaq Composite that's up 4.46%. Over the past 12 months to the day, the Sarge-folio is up 74.48%, while the S&P 500 is up 12.79% and the Nasdaq Composite is up 12.25%, so we don't scare that easy and as long as we adjust as target prices and panic points move, we have a history of being able to defend ourselves.
Readers will see that CRWD had fully developed a double-bottom pattern of bullish reversal with a $392 pivot this past winter into spring. That created a target close to $470 at the time. However, the breakout from the double bottom morphed into a rising wedge, which has perpetuated the rally.
True that rising wedges are patterns of bearish reversal. That said, the breakout from the double bottom was something of a rising wedge in its own right and that one only gave birth to the current wedge that evened out the trajectory of the increasing share price to something far more sustainable.
Currently, the upper trendline of the wedge is my upside pivot. There is legit support at the lower trendline (currently $497). My opinion? I don't need to act at all unless that lower trendline cracks. Oh, and if it does crack, I don't have to panic unless the 50-day SMA (currently $461) breaks. Relative strength is still robust enough.
The daily MACD though is rather non-committal but has been since early May and the stock is up almost 24% since then. My assessment, and we are talking my book here, as CRWD is currently the fourth-largest position in my most actively-traded portfolio, the one I call the Sarge-folio, is simple. Stick to the plan.
CrowdStrike Holdings (CRWD)
Target Price: $595
Pivot: $517
Add: Close to 50-day SMA
Panic: Loss of 50-day SMA
At the time of publication, Guifoyle was long CRWD equity.
