Why Informatica Shares Might Slow Down

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Informatica (NASDAQ: INFA  ) closed down 3.4% yesterday after Barclays Capital downgraded the data integration software specialist from overweight to equal weight.

So what: Along with the downgrade, analyst Raimo Lenschow slightly lowered his price target to $45 (from $44), representing about 15% worth of upside to where the stock sits now. Informatica shares have rallied nicely over the past year on strong top-line growth, but Lenschow thinks the valuation is baking in too much optimism heading into the third quarter.

Now what: While Barclays expects Informatica to meet its third-quarter estimates, it sees the chances of a big upside surprise as rather low. "Given we do not currently see evidence of a further [revenue acceleration], we believe upside to the multiple will be limited for the next several quarters and are thus downgrading the shares to Equal Weight," noted Barclays. "This is partially based on the deterioration in the data for INFA within our VAR survey, as several partners reported their INFA businesses coming in below plan." With Informatica up about 70% from its 52-week lows and trading at a 50-plus P/E, I'd have to agree with Barclays that those risks aren't being sufficiently factored into the valuation.

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