KeyBanc Sees Positive Long-Term Story In New Relic, But Says Shares Are Fully Valued

New Relic Inc (NYSE: NEWR) hosted its analyst and investor day Monday afternoon where management detailed the company's "early opportunity," according to KeyBanc Capital Markets. 

The Analyst

Analyst Rob Owens downgraded New Relic from Overweight to Sector Weight with no assigned price target.

The Thesis

New Relic highlighted the opportunity it faces as a cloud-native provider in the application performance monitoring market, Owens said in the downgrade note.

The company said it's on track to reach or beat its $1-billion revenue run rate objective exiting fiscal 2022, which implies a compounded annual growth rate in the mid-to-high 20s over the next four years, the analyst said.

New Relic also introduced new and "achievable" targets of a 15-20-percent free cash flow margin and 30 percent in the longer term. 

Yet the stock offers investors "little room for rational" upside at today's levels, the analyst said. The equity has already gained more than 80 percent since the start of 2018 and is trading at around 30x expected free cash flow exiting fiscal 2022.

KeyBanc does not forecast the stock's valuation shifting higher except in the event of takeout chatter. 

Price Action

Shares of New Relic were trading lower by 0.62 percent at the time of publication Wednesday morning. 

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