Morgan Stanley Upgrades BlackLine Stock to Overweight, Sets Price Target at $70 - Optimistic Outlook on Margin Expansion
On Monday, Morgan Stanley upgraded BlackLine (NASDAQ: BL) stock, a leading provider in the Financial Close market, from Equalweight to Overweight and increased the price target to $70.00 from $60.00. The firm believes that BlackLine's current trading position, at a discount of more than 35% compared to its peers, presents a favorable outlook for the company.
The optimism from Morgan Stanley is rooted in the anticipation that BlackLine's margin expansion trajectory is not fully appreciated by the market. The firm suggests that BlackLine's management is likely to revise their margin targets upward at the upcoming Investor Day on November 19th.
Morgan Stanley has raised its Free Cash Flow (FCF) estimates for BlackLine to the highest levels among Wall Street predictions. It projects a 32% compound annual growth rate (CAGR) in FCF through 2026, with FCF margins reaching 22%, 25%, and 29% for fiscal years 2024, 2025, and 2026, respectively.
The financial institution's analysis points to BlackLine's stock trading at approximately 13 times the enterprise value to CY26 Free Cash Flow based on the new FCF estimates, significantly lower than the average of SMID-cap peers. This suggests that investors might not be fully recognizing the company's potential for margin growth.
In other news, BlackLine reported a significant uptick in Q2 2024 earnings, boasting a revenue of $161 million and a non-GAAP net income of $43 million. The company's strategic product portfolio, particularly in consolidation and financial analytics, had a strong quarter.
Furthermore, BlackLine appointed David Henshall, an individual with a rich background in enterprise software and financial management, to its Board of Directors. Baird also maintained a positive outlook on BlackLine, reaffirming an Outperform rating and a price target of $65.
Investment activity saw some shifts, with Soros Capital Management selling off its stakes in Microsoft and Advanced Micro Devices, while Jana Partners established a new position in BlackLine Systems, owning nearly a 2% stake. The Saudi Public Investment Fund increased its U.S. stock holdings to roughly $20.7 billion by adding call positions in PayPal, Microsoft, and Meta Platforms Inc.
Looking ahead, BlackLine expects a total GAAP revenue for Q3 to be between $162 million and $164 million, indicating an 8% to 9% growth.
InvestingPro Insights:
Recent data from InvestingPro aligns with Morgan Stanley's optimistic outlook on BlackLine. The company's revenue growth of 11.94% over the last twelve months and a strong gross profit margin of 75.39% underscore its solid financial performance. This robust top-line growth and profitability support Morgan Stanley's expectation of potential upward revisions in margin targets.
InvestingPro Tips highlight that BlackLine operates with a moderate level of debt and has liquid assets exceeding short-term obligations, which could contribute to the company's ability to expand margins and generate stronger free cash flow, as projected by Morgan Stanley. Additionally, the tip indicating that net income is expected to grow this year aligns with the analyst's positive outlook on BlackLine's financial trajectory.
In conclusion, the upgrade of BlackLine stock by Morgan Stanley and the positive outlook on margin expansion suggest a promising future for the company. Investors may want to consider the company's financial health, market position, and potential for growth, as highlighted by InvestingPro, to make informed investment decisions.