What happened
Shares of Okta (OKTA 1.21%) were higher today after the beaten-down stock got a positive analyst note from Jefferies, which said that the risk/reward on the cloud identity software company is appealing right now.
As of 12:10 p.m. ET, Okta stock was up 3.8% on the news.
So what
In a note this morning, Jefferies analyst Joseph Gallo lowered his price target from $90 to $80 but maintained his buy rating on the stock. His new price target still implies a near-60% upside in the stock from yesterday's closing price.
Gallo argued that Okta is a good bet to outperform, given the low expectations coming into its third-quarter earnings report tomorrow night. At this point, he believes the company simply needs to meet consensus expectations for Q3 billings growth at 26% and guide to 20%-plus revenue growth in fiscal 2024 with improving margins in order for the stock to move higher.
Now what
Okta stock fell sharply on its second-quarter earnings report as the company stepped back from its long-term guidance, calling for fiscal 2026 revenue of $4 billion at 20% free cash flow margins. The company also acknowledged missteps with its integration of Auth0, the customer identity software company it acquired last May, saying that it had more attrition in its sales force than expected.
Finally, management also said it was seeing lengthening sales cycles, a reflection of the macroeconomic headwinds that a number of software companies are facing.
Despite those challenges, Okta is still the leader in identity for the cloud and has a promising growth opportunity ahead of it.
For the third-quarter earnings report, analysts are expecting revenue growth of just 32.7% to $465.3 million and for its adjusted loss per share to widen from $0.07 to $0.24.
If Okta can beat those numbers, the software stock could rally, as it's already fallen sharply this year.
