New Relic rises as RBC Capital upgrades after 'upbeat' analyst day
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New Relic (NYSE:NEWR) shares rose around 3% in pre-market trading on Friday as RBC Capital upgraded the tracking and analytics company after an "upbeat" analyst day.
Analyst Rishi Jaluria raised his rating on New Relic (NEWR) to outperform from sector perform and boosted the per-share price target to $95 from $75, citing "clear visibility" into accelerating growth based on "healthy" consumption trends and a better shift of products.
"In other words, even if organic consumption growth (ex-migrations) decelerates to 20% (vs. 32% in F4Q23), total growth would still accelerate towards 20% exiting [fiscal 2025] (vs. 10-11% in [fiscal 2024] per guidance)," Jaluria wrote in an investor note.
Jaluria added that the growth is coming with "healthy" margin expansion, as the company guided to roughly 18% operating margins in the second-half of fiscal 2024. It also has a "reasonable" long-term target to reach free cash flow margins between 22% and 27%, including a boost in R&D spending. 
"In other words, not only is there a glide path to becoming a Rule of 40 company, but it could become a Rule of 50 company in the medium-term," Jaluria added.
New Relic (NEWR) has transitioned its model to focus more on consumption than subscription and its offerings are "increasingly competitive" with competitors such as Datadog (DDOG), Jaluria said, which should lead to higher spending over time. Additionally, the company is likely to benefit from "multiple" tailwinds, including generative AI and OpenTelemetry.
New Relic (NEWR) reported fiscal fourth-quarter results and guidance earlier this week.
Analysts are largely bullish on New Relic (NEWR). It has a HOLD rating from Seeking Alpha authors, while Wall Street analysts rate it a BUY. Conversely, Seeking Alpha's quant system, which consistently beats the market, rates NEWR a STRONG BUY.
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