On Thursday, BofA Securities adjusted its outlook on c3.ai (NYSE:AI), a leading enterprise AI software provider. The firm's analyst increased the price target to $20.00 from the previous $18.00 while keeping an Underperform rating on the stock.
The analyst noted that c3.ai delivered robust third-quarter results, surpassing expectations in both revenue and operating income. Despite these strong quarterly figures, the company's revised full-year forecasts for revenue and operating income did not match the quarter's outperformance, indicating that some of the success might be due to timing.
c3.ai has expanded its customer base, adding 41 new customers, bringing the total to 445. In executive movements, Chief Financial Officer Juho Parkkinen is set to transition to the role of Vice President of Finance. Hitesh Lath, the current Chief Accounting Officer, will step in as the new CFO. This transition is particularly notable as it follows less than two years of service by Parkkinen and comes after two prior CFO changes within less than a year.
The price target increase to $20 is primarily attributed to a multiple expansion across the group. However, the analyst maintains the Underperform rating, citing the company's trailing twelve months rule of -21, which combines an 11% year-over-year increase and a -32% pro forma operating margin. This performance contrasts with the company's small cap software peers, which average a rule of +26.
The analyst expressed skepticism about the premium currently priced into c3.ai's shares, even when considering potential tailwinds from generative AI. The new price target of $20 corresponds to 0.3 times growth-adjusted for a projected 14% year-over-year revenue growth, compared to small cap software peers trading at 0.4 times growth-adjusted on a 12% year-over-year growth.
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