Dynatrace shares initiated with Outperform, $60 target by Wolfe Research

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On Monday, Wolfe Research began coverage on shares of Dynatrace Inc. (NYSE:), assigning an Outperform rating and setting a price target of $60.00. The research firm highlighted Dynatrace’s significant market opportunity, innovative product cycle, and distinct full-stack observability offering as key factors for the optimistic outlook.

Dynatrace’s management team, including CEO Rick McConnell, Founder & CTO Bernd Greifeneder, and CFO Jim Benson, received praise for their recent performances and prudent guidance. The company’s strong position in enterprise growth-to-market (GTM) strategy and potential for large strategic deals was also noted, with a 39% year-over-year growth in deals over $1 million in annual contract value (ACV).

The firm anticipates Dynatrace’s fiscal fourth quarter of 2024 to show an uptick in annual recurring revenue (ARR), suggesting that even if net revenue retention (NRR) dips to the lower end of guidance, it is expected to stabilize, with FY25 ARR guidance aligning with consensus. Wolfe Research projects a three-year revenue compound annual growth rate (CAGR) of 19% in their upside model for Dynatrace.

The analyst pointed out that Dynatrace’s shares are trading at a discount compared to its peers, at 7.0 times the calendar year 2025 enterprise value to sales (EV/Sales) and 29 times calendar year 2025 enterprise value to free cash flow (EV/FCF). This, along with a 25% drop in share price since the last earnings report, was seen as an attractive entry point for investors.

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