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Goldman Plays Catch Up: Upgrades Netsuite To Neutral, Removes From Sell List

Oracle Corporation ORCL has announced plans to acquire NetSuite Inc N in a cash transaction of $109 per share, or approximately $9.3bn. Goldman Sachs’ Jesse Hulsing upgraded the rating on NetSuite from Sell to Neutral, while raising the price target from $65 to $90.

Since May 23, NetSuite’s shares have gained 40 percent, versus a 6 percent gain in the S&P 500. The offer price represents a 19 percent premium to NetSuite’s July 27 close, and the multiple is at the high-end of “the historical SaaS acquisition range,” analyst Jesse Hulsing noted.

NetSuite has reported its 2Q revenue at $230.8mn, representing 30 percent y/y growth and slightly above the consensus expectation of $230.6mn. Billings came in at $255.4mn, representing 27 percent y/y growth and slightly missing the consensus estimate of $256.7mn.

Higher M&A Probability

Hulsing raised the M&A rank assigned to NetSuite from “3” [which represents low probability of 10-15 percent of M&A activity] to “1” [which represents high probability of 30-50 percent].

“While our fundamental view has not changed (current billings growth decelerated to 22% y/y in the quarter from 32% in 1Q16), we believe the stock is likely to trade on the M&A optionality moving forward,” the analyst wrote, while noting the key risks as “regulatory review of the pending acquisition, inflection in bookings growth, productivity, and margins.”

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DateFirmActionFromTo
Jul 2016Goldman SachsUpgradesSellNeutral
Jul 2016Morgan StanleyUpgradesUnderweightEqual-weight
Jul 2016JP MorganDowngradesOverweightNeutral

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