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PagerDuty, Inc. (NYSE:PD) shares were lifted to Overweight from Equal-Weight, with its price target raised to $36 from $32 by Morgan Stanley analysts on Friday who stated that the company is “answering the call to drive better profitability.”
PagerDuty shares jumped more than 4% following the upgrade.
The analysts explained that robust unit economics, highly ratable sub-revenue, and market leadership in a vital category provide the backdrop for a strong pivot to profitability.
“Revenue growth has proven durable sustaining a 32% CAGR over the past two years supported by sustained net dollar retention rates that have exceeded 120%+ for eight straight quarters,” they said.
Morgan Stanley acknowledged that, like the vast majority of its coverage universe, PagerDuty will likely see slower growth heading into a tougher spending environment in FY24.
“However, we believe that the company can sustain ~20% growth over the next few years due to: 1) substantial progress moving up-market (only 20% SMB exposure today vs. ~30-35% at time of IPO) where spending trends are more durable, 2) PagerDuty’s key role in responding to and resolving service incidents that can significantly impact business operations which should shield the company from IT budget cuts and 3) a more favorable competitive environment which should translate to continued share gains in the $17 billion IT operations management market,” the analysts argue.
