Shares of DocuSign (DOCU -0.84%) have jumped today, up by 5% as of 12:05 p.m. EDT, after getting an upgrade from Wall Street. Morgan Stanley boosted its rating from equal weight (equivalent to a neutral) to overweight (equivalent to a buy) while assigning a price target of $260, representing roughly 19% upside from Friday's closing price.
Analyst Stan Zlotsky believes that the shift to digital signatures, which has been accelerated by the coronavirus pandemic, is here to stay. Zlotsky argues that the company's "strong fundamentals and durable Covid-19 tailwinds make the DocuSign story more compelling than ever."
The coronavirus outbreak is driving "strong new customer acquisition" as well as "very healthy renewal rates" since companies are not ready to go back to traditional paper processing anytime soon. The addressable market is large, and DocuSign is the clear leader in electronic signatures in addition to having upsell opportunities with customers.
Morgan Stanley previously had concerns around valuation, downgrading DocuSign stock in January when it was trading at a premium compared to other software-as-a-service (SaaS) peers. Shares have since closed that valuation "gap," and the analyst believes that continued adoption of the platform throughout the rest of the year can potentially drive multiple expansion.
DocuSign can now justify a premium with an attractive "growth and profitability profile," in Zlotsky's view. The $260 price target represents Morgan Stanley's conservative base-case scenario. DocuSign also has a good chance to keep beating consensus estimates.