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.”

Do you have ideas for articles/interviews you'd like to see more of on Benzinga? Please email feedback@benzinga.com with your best article ideas. One person will be randomly selected to win a $20 Amazon gift card!

© 2016 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.