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Snowflake Is a Great Cloud Stock to Buy on the Dip, Says Wells Fargo -- Barrons.com

Barron's · 01/06/2023 13:24
By Tae Kim

Investors should buy Snowflake shares because companies are going to need the cloud-software data warehousing company's services even as the economy slows down, Wells Fargo Securities says.

On Friday, analyst Michael Turrin initiated coverage of Snowflake stock (ticker: SNOW) with an Overweight rating and a price target of $170. That represents a potential gain of 37% from current levels.

"Our work suggests SNOW is better built to weather this [economic] storm given the company's mission-critical technology," he wrote. The "investor pendulum will ultimately swing back towards growth throughout the course of the year, and we see SNOW as among the most direct beneficiaries."

In early afternoon on Friday, Snowflake stock was up 3% to $125.20. The Nasdaq Composite had risen 1.8%.

The analyst noted that Snowflake's product revenue has more than doubled each of the last four years. He estimates the company will increase its software sales by nearly 70% this year as it benefits from strong partnerships with the major cloud-computing vendors.

Snowflake shares have fallen about 58% over the past year as growth stocks with high valuations have tumbled in response to rising interest rates.

Higher rates lower the current, discounted value of future earnings, which has a larger impact on growth-oriented stocks than on the rest of the market because most of their value comes from profit streams that are further out. Cloud technology companies, which are expected to grow rapidly, are highly vulnerable.

But Turrin believes Snowflake's premium current valuation -- its enterprise value is roughly 11.5 times estimated 2023 sales -- is justified given the company's "clear market opportunity ahead."

Write to Tae Kim at tae.kim@barrons.com

(END) Dow Jones Newswires

January 06, 2023 13:24 ET (18:24 GMT)

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