On Friday, nCino Inc. (NASDAQ:NCNO) received an upgrade from Morgan Stanley, moving from an Underweight to an Equalweight rating. The financial institution also increased the price target for the cloud banking provider to $27.00, up from the previous $24.00. The adjustment comes after a re-evaluation of growth estimates that previously seemed too optimistic.
The analyst from Morgan Stanley highlighted that the previous Underweight rating was based on fiscal year 2025 growth estimates that no longer seem attainable, given nCino's recent bookings performance. While the consensus for FY25 subscription revenue growth stands at 14.9% year-over-year, the firm believes this figure is overly ambitious, expecting a more conservative 13.1% increase in total revenue growth for the same period.
The revised outlook suggests that the market has adjusted its expectations to align with the more conservative estimates, and as a result, nCino's valuation now appears more reasonable. The company's enterprise value to EBITDA multiple, a metric used to gauge a company's valuation, has decreased to approximately three times, compared to eight times at the time of the previous downgrade.
Morgan Stanley's analysis pointed out that while banks and credit unions are maintaining stable technology investments with high single-digit year-over-year growth, the responsibility lies with nCino to demonstrate that demand has reached a low point and that revenue growth is set to pick up in fiscal year 2026.
Although the firm still foresees potential downside to the new $27 price target, the risk-reward balance for nCino's shares is now considered to be more aligned with other stocks that hold an Equalweight rating in Morgan Stanley's portfolio.
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