We're raising our CrowdStrike price target after shortsighted post-earnings selling

CNBC

3 days ago

CrowdStrike on Tuesday evening reported quarterly beats on many of the key metrics that investors focus on. However, it also delivered mixed guidance. As a result, we're not surprised to see some profit-taking in after-hours trading, following Tuesday's record-high close of nearly $489 per share. Revenue in the fiscal 2026 first quarter increased 20% year over year to $1.1 billion, landing right in line with estimates, according to LSEG. Growth was seen in all major geographic regions. Adjusted earnings per share (EPS) declined 8% annually to 73-cents in the three months ended April 30, but that was ahead of the 65-cent estimate, LSEG data showed. Annual recurring revenue (ARR) jumped 22% to $4.44 billion, also ahead of the $4.42 billion estimate, according to FactSet. This represented a net new addition of $193.8 million. Remaining performance obligations (RPO) increased 45% year-over-year to $6.8 billion, beating the $6.16 billion FactSet consensus. Management also announced a new $1 billion share repurchase authorization. CRWD YTD mountain CrowdStrike YTD With a lot to like about the quarter and guidance we can live with, we're raising our price target to $500 per share from $400. That reflects a premium of more than 9% to Wednesday's indicated open around $457. Even with an after-hours decline of more than 6%, the stock was still up over 40% from its 2025 low of $321.63 on April 4 — two trading days after President Donald Trump 's evening announcement on April 2 of much higher than expected "reciprocal" tariffs. CrowdStrike shares never deserved to be that low, but a move like that must be respected. So, we're maintaining our hold-equivalent 2 rating. Bottom line By nitpicking the results, the sellers Tuesday evening are missing the forest for the trees. Sure, CrowdStrike's current quarter and fiscal year 2026 guidance were mixed. But in both cases, profitability was better than expected. More importantly, CEO George Kurtz said on the post-earnings conference call that CrowdStrike's Falcon Flex subscription model is "accelerating platform adoption at a faster pace than we've ever seen before." The reality is that demand for best-in-class cybersecurity is only going to grow as artificial intelligence advances and hackers adopt increasingly sophisticated tools. Cybersecurity is not a discretionary buy for corporations, it's a critical expense that must be prioritized regardless of economic conditions or tariff fears. With net new ARR expected to accelerate in coming quarters — and management calling for further expansion of both adjusted operating income margin and free cash flow margin in its fiscal year 2027 to "at least 24%" and "more than 30%," respectively — the stock's post-release decline will likely prove to be a buying opportunity as it has in the past. Why we own it Cybersecurity is a must-have for companies in the digital age. Led by co-founder and CEO George Kurtz, CrowdStrike is one of the best there is (along with fellow Club name Palo Alto Networks ). The company specializes in endpoint protection through its AI-native platform called Falcon. Competitors: Palo Alto Networks, Fortinet , SentinelOne , Microsoft Portfolio weighting: 3.6% Most recent buy: March 10, 2025 Initiation date: Oct. 16, 2024 Quarterly commentary The hard work Kurtz and his team have been putting in since CrowdStrike's botched software update caused a global IT outage back in July 2024 continues to pay off, and the momentum we're seeing now may even accelerate in the quarters to come. On the call, Kurtz noted that the company's nearly $194 million net new ARR result came in "double-digit millions" ahead of the team's own expectations. He was also sure to call out that CrowdStrike's gross customer retention held in at 97%, in line with the prior two quarters. Subscription gross margin was also a bright spot, coming in at 80%, on an adjusted basis. Operating cash flow, meanwhile, represented a new quarterly record and helped drive the team to a 25% free cash flow margin and double-digit free cash flow growth, sequentially. Kurtz said on the call that customers who adopt the Falcon Flex subscription — over 820 accounts, so far — spend more, commit to longer durations, and tend to adopt the Falcon platform more quickly, with more than 75% of those contracts already deployed. The Falcon Flex model allows customers to achieve a low total cost of ownership while optimizing security by letting them swap one security module for another as needed. During the quarter, Kurtz noted that the team "added $774 million of total Falcon Flex account value, bringing the total deal value of accounts that have adopted Falcon Flex to $3.2 billion." That represents a 31% increase versus the prior quarter and a greater than six-fold increase versus the year-ago period. Given the strong momentum seen in the first quarter, Kurtz is confident that we will see even better sequential net new ARR growth in the current quarter, with an acceleration in the back half of the year, consistent with prior commentary. Guidance For full-year fiscal 2026, CrowdStrike management expects total revenue of $4.74 billion to $4.81 billion, unchanged from the prior guide. But at the midpoint, it was slightly below the $4.79 billion consensus estimate, according to FactSet. The company raised its adjusted EPS outlook to a range of $3.44 to $3.56, which at the midpoint was above the $4.46 expected. Adjusted operating income was also raised to between $970.8 million and $1.01 billion, which at the midpoint of $990.8 million outpaced the $976 million expected. For its 2026 fiscal second quarter, CrowdStrike's revenue guidance at the midpoint was $1.15 billion, a bit below the $1.16 billion consensus. The midpoint of guidance for operating income of $230 million and EPS of 83 cents, however, outpaced expectations of $227 million and 81 cents, respectively. While the team does not guide for net new ARR, CFO Burt Podbere commented on the call that this guidance for the current quarter assumes a "sequential net new ARR growth rate to be at least double over what we saw from Q1 to Q2 in the prior fiscal year." (Jim Cramer's Charitable Trust is long CRWD. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. 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