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Morgan Stanley Sees Strong Growth Ahead For Pivotal Software

Shanthi Rexaline

Pivotal Software Inc (NYSE: PVTL), a cloud-native platform that facilitates software development, recently offered 37 million shares in an IPO, with each share priced at $15.

The Analyst

Following the expiry of the IPO quiet period, Morgan Stanley analyst Sanjit Singh initiated coverage of Pivotal Software with an Overweight rating and a $24 price target.

The Thesis

Pivotal Software is the leader in transforming software development for businesses in an era when enterprises prefer combined development and seek operational platforms to facilitate innovation, Singh said in a Tuesday note. With a $22 billion addressable market, the analysts see 35 percent growth ahead.

The company has a base-case opportunity of about $22 billion and bull-case opportunity of $45 billion in 2017 through its Application Platform market as well as, segments within Middleware and Delivery Automation, according to the analyst. This is expected to grow to $31 billion by 2021.

Morgan Stanley noted FY2018 subscription revenues rose 73 percent year-over-year to $500 million. The analyst expects a slowdown in the metric in 2019 due to the potential for lumpiness in large enterprise infrastructure software deals and tempered expectations for new offerings released in the past year.

"However, given a compelling joint container offering with VMware in Pivotal Container Service,and opportunities for expansion in an underpenetrated customer base, we think our FY19 estimates likely prove conservative," Singh said.

The Price Action

Since debuting with a gain of 5 percent on April 20, Pivotal Software shares have added about 20 percent. The stock traded around $19.28 at time of publication.

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Latest Ratings for PVTL

Date Firm Action From To
May 2018 Bank of America Initiates Coverage On Neutral
May 2018 Goldman Sachs Initiates Coverage On Buy
May 2018 UBS Initiates Coverage On Neutral

View More Analyst Ratings for PVTL
View the Latest Analyst Ratings

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