Splunk should have 'solid' Q4, BofA says, as channel checks show 'healthy' usage
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Splunk (NASDAQ:SPLK) is slated to report fourth-quarter results on Wednesday and Bank of America believes the print should be "solid," highlighting new activity and "healthy usage patterns."
Analyst Brad Sills, who has a buy rating and $180 price target on the data analysis software company, noted that Splunk's partners saw "solid momentum" in the fourth-quarter as it pertained to deal activity, particularly for security. In addition, there was a "healthy" start to 2022 and with the majority of new deals being cloud-based, while still seeing momentum for workload-based pricing and demand building for observability, Splunk is poised to benefit. 
"We believe solid demand is likely to translate to Cloud/Total ARR upside," Sills wrote in a note to clients. 
Splunk shares were down more than 2% to $118.38 in premarket trading on Monday.
The analyst added that he expects cloud and total annual recurring revenue of $1.36 billion, up 68% year-over-year and $3.15 billion, up 33% year-over-year, respectively. 
"With the stock trading at 5.7x C23 revenue, and our expectations for solid Q4 ARR upside/growth, we believe risk/reward is attractive heading into results Wednesday," Sills added.
In addition, Splunk could see a number of near term catalysts, including a new CEO, improved free cash flow growth and revenue reaccelerating as it moves further into the cloud and approach half of its cloud billings in the fourth quarter. 
There's also speculation that Splunk could be acquired, as it was reported earlier this month that Cisco (NASDAQ:CSCO) had made a $20 billion offer for the company.
A potential Splunk-Cisco tie-up would be considered "strategically positive" for the Chuck Robbins-led Cisco, Morgan Stanley said earlier this month.