Despite recent execution blunders that have sent SentinelOne shares plunging by more than 35% over the past 12 months, Morgan Stanley thinks the market is now mispricing the cybersecurity company. Analyst Hamza Fodderwala upgraded shares to overweight from equal weight. He also increased his price target to $20 from $15, implying 37.4% upside from Friday’s close. The bank said SentinelOne’s inherent value is a “long-term share gainer” with the potential for meaningful margin upside. “While recent execution missteps have shaken investor confidence, we think the intrinsic value of the asset is much higher than the market ascribes and see a compelling risk-reward with valuation now at a 50% discount to peers on a growth-adjusted EV/Sales basis,” Fodderwala wrote in a Monday note. The company’s management execution has significantly weighed upon its material topline slowdown, according to Morgan Stanley. Multiple executives have left the company over the past year, including its chief marketing officer and president. A toughening macro environment has also been a headwind to sales, said the bank. That said, Fodderwala thinks SentinelOne offers “a market-leading product and growing distribution channels” which could see more than 20% durable topline growth. He noted that the company currently only holds 3% market share. SentinelOne has further opportunity for margin improvement “as cloud cost optimization, headcount reduction and channel partner leverage accelerate the path to 20%+ EBIT margin longer term,” Fodderwala said. “With topline forecasts now appropriately de-risked, we see a clear catalyst path to value accretion from more consistent beat/raise cadence and stronger cost discipline driving positive [free cash flow] next year,” he added. Shares were up more than 6% Monday before the bell. S YTD mountain S in 2023 —CNBC’s Michael Bloom contributed to this report.
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