Piper Sandler analysts upgraded CrowdStrike (NASDAQ:CRWD) shares to Overweight on Tuesday, citing their belief that the stock offers a “compelling risk/reward level for investors” following the recent outage-driven sell-off.
CRWD stock plummeted more than 42% over the past month and now trades at the lowest level since November 2023.
Historically, outages and breaches have had modest impacts on cyber business fundamentals, Piper Sandler notes, however, the scale of the CRWD-caused outage is unprecedented.
"Even though the near-term news cycle will likely revolve around litigations/settlements, congressional testimony, and ensuing numbers cuts ahead of and on F'2Q earnings, the ramifications of the event will likely be more-so short-lived and at negligible cost, in our view,” analysts said.
“With shares down sharply for the month, we believe investors should opportunistically build positions at current levels,” they added.
In response to the event, analysts are moderating their CrowdStrike estimates and trimming the price target from $310 to $290.
CrowdStrike shares climbed 3% in premarket trading.
Given the unprecedented outage, analysts acknowledge that the sheer magnitude and number of impacted individuals will lead to claims, lawsuits, and significant attention.
The current political climate will bring Congress into the spotlight, with the U.S. House of Representatives Homeland Security Committee requesting a hearing.
Despite being the most affected company, Delta Airlines' (NYSE:DAL) liability is "contractually capped at an amount in the single-digit millions," according to a letter from a CRWD attorney.
With CRWD's strong cash flow generation of over $1 billion in trailing twelve-month free cash flow and its insurance coverage for such incidents, analysts said they have “little concern about the cost side of the equation.”
“However, at some level, this will impact numbers through new business, renewals, churn and discounting not to mention a seemingly more challenged current backdrop,” they cautioned.
Nonetheless, CRWD remains a dominant player in the endpoint security space and is well-positioned to benefit from broader consolidation trends in the cybersecurity sector, analysts argue.
They believe that while the outage was unfortunate, it underscores the vulnerability of interconnected digital infrastructures and should prompt a focus on better resiliency and cyber defense capabilities.
"While CRWD has clearly been put in the penalty box, we believe this represents a compelling risk/reward level for investors."