Morgan Stanley remains Overweight Nuix despite fresh downgrade

Despite a disastrous IPO and a string of downgrades, Nuix (ticker: NXL) still has its backers.

Optimism

Morgan Stanley, the storied investment bank, yesterday reiterated their Overweight rating on the stock and a 12-month price target of $7.50 per share.

Should we get back to those levels, current buyers would be looking at significant upside. In the current environment however, the ‘should’ in that sentence is doing a lot of lifting.

The past is no predictor of the future, nor are there any guarantees around the accuracy of investment bank price targets.

Yesterday we ran through the story of Nuix thus far. You can read it here. For those without the time, Nuix – which is an investigative analytics and intelligence software company – sprung to market with high hopes last year.

The stock at one point traded close to $12 per share off the back of lofty expectations and a juiced up IPO roadshow. Management said they were on track to hit revenues of $191.3 million for the full-year. Then they said they weren’t. And then they said they definitely weren’t.

The current expectations are for full-year revenues of between $173 million to $182 million. FY21 EBITDA is expected to come in at between $64.6 to $66.6 million.

Morgan Stanley did point out that while revenue guidance was only lowered by the low single digits, the response by the market, which saw the stock sold down close to 20% yesterday, was hardly surprising.

According to the investment bank this is ‘because a 2nd downgrade in two months points to the difficulty NXL is having forecasting it’s own revenue base at this point.’

Not to mention that Nuix management left the door open for further amendments to this guidance, saying:

'The revised forecasts are susceptible to a number of risk factors relevant between now and 30 June 2021, including final customer negotiations of productions and license types, timing of deals and potential FX rate variable.'

Pessimism

Ultimately, while Morgan Stanley’s positive view of the sector remains (industry view: attractive) as well as the company's longer term growth profile, this string of downgrades have highlighted elevated uncertainty in the name.

‘The risk profile surrounding NXL equity value, has moved meaningfully wider…and we expect the shares reflect a discount to intrinsic value until confidence is restored.’

Confidence in the short-term is certainly down. The stock didn’t rebound today as is often the case, though it also didn’t continue falling. As of 2:37 PM Nuix traded at $2.78 per share, up 0.36% for the session.

At those levels the stock is down 67% since January, when hopes were high and the future seemed certain.

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