Pure Storage has a strong, long-term growth outlook, according to Guggenheim Securities. The investment firm initiated coverage of the software storage firm with a buy rating Thursday. Guggenheim’s price target of $48 implies potential upside of about 50% from the stock’s closing price of $31.81 on Wednesday. The consensus price target among analysts surveyed by FactSet is $42. Shares of Pure Storage have rallied more than 19% so far this year, matching the S & P 500. PSTG YTD mountain PSTG ytd chart Analysts led by Howard Ma praised Pure Storage for its innovation, calling it a “disruptor in the enterprise storage market.” “Its ground up approach to designing all-flash storage systems with proprietary software that natively controls NAND flash has yielded what most IT buyers consider nirvana — better performance at lower cost,” Ma wrote in an 87-page report. He added that Pure Storage’s strategy has allowed it to double its revenue share in the primary storage market to 10% in just five years. Ma believes the company could eventually achieve 20% or even 50% market share, which he said would correspond to “$10 billion or 3.5x incremental revenue.” The analyst sees further opportunities for Pure Storage in the secondary storage market, where he estimated that around 40% of the market — a $3 billion opportunity — is now available for capture. However, this would be dependent on the company significantly lowering its average selling price. “Given our analysis of NAND flash prices, we struggle to see how Pure can lower its ASP to $0.05/GB, which would give it a shot at selling directly to AWS, Azure or Google. It’s possible though, considering this team continues to push the boundaries,” Ma wrote. Guggenheim noted, however, that Pure Storage’s end success does not rely on these “incremental opportunities.” That’s because he believes the company could one day be valued like a software company given its high stream of stable revenue, which would significantly boost its stock price. Shares of Pure Storage are currently relatively undervalued versus software peers, reflecting only “modest incremental traction” within the primary storage market. — CNBC’s Michael Bloom contributed to this report.
