KeyBanc Downgrades Tableau Software To Reflect 'More Balanced' Risk-Reward

After a nearly 65-percent return in 2017, one notable Wall Street analyst is ready to call an end to Tableau Software Inc (NYSE: DATA)'s bull run.

The Analyst

KeyBanc Capital Markets' Brent Bracelin downgraded Tableau Software's stock from Overweight to Sector Weight with no assigned price target.

The Thesis

Tableau Software benefited in 2017 from improving investor sentiment tied to a new management team and a transition to a subscription business model that was fully embraced in April, Bracelin said in the downgrade note. (See the analyst's track record here.) 

This led to a "meaningful" multiple expansion from 2.9x FTM EV/S to 5.2x, which was justified based on the rise in the mix of recurring revenue, Bracelin said: from $377 million last year (38 percent of sales) to a run-rate of $570 million (59 percent of sales).

Looking forward, Tableau Software's free cash flow could rise to $2-$3 in the next three years, adding to positive sentiment, the analyst said. But the stock's strong gains throughout 2017 need to be factored in, as the 64-percent gain in 2017 now creates a "more balanced" risk-to-reward profile in 2018, Bracelin said. 

Increasing competitive risks could limit margin and multiple expansion, and operating risks are "likely to remain high" during the front half of 2018, the analyst said. 

"We advise growth investors to wait until visibility improves into a 2H18 recovery before adding to positions." 

Price Action

Shares of Tableau Software were trading down 1.69 percent at $70.40 early in Thursday's trading session. 

Related Links:

'Getting Comfortable' With The Tableau Software Story

Tableau Software Returns To Bank Of America's Top Picks List

Photo courtesy of Tableau Software.