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UBS upgrades Rapid7 to Buy as margin story is ‘still discounted’

Published 01/29/2024, 04:53 PM
Updated 01/29/2024, 04:56 PM
© Reuters.  UBS upgrades Rapid7 (RPD) to Buy as margin story is ‘still discounted’
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Shares of Rapid7 Inc . (NASDAQ:RPD) closed 5.57% higher Monday after UBS upgraded the stock to ‘buy’ from ‘neutral,’ taking note of a margin story that is “still discounted” and a shift to higher growth offerings that is presently underappreciated.

UBS analysts also raised their price target to $70 from $53.

“We see ~4pts of additional OpM expansion in CY24E to mid-teens following the 7pts+ in CY23E. RPD has already executed well on the 3Q restructuring and we expect the company to meet the CY24 FCF target with high single digit opex growth,” said the analysts.

In addition to margin expansion in 2024, analysts also see upside supported by increasing exposure to SecOps and expect over 60% of ARR to come from solutions outside of vulnerability management by CY25E.

“This mix shift should positively affect overall growth as RPD shifts focus towards bigger opportunities,” they noted.

Rapid 7 is also a compelling value proposition, note analysts. “At 21x CY24E EV/FCF, RPD trades at a 6 turn discount to its closest peers (including TENB), for similar growth and improving profitability,” they wrote.

“We don’t think RPD is getting enough credit for its margin efforts or exposure to SecOps modernization trends.”

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