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SentinelOne's Solid First Quarter Reinforces Confidence in Growth Durability, BofA Says in Upgrade

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SentinelOne's Solid First Quarter Reinforces Confidence in Growth Durability, BofA Says in Upgrade

SentinelOne (S) delivered a solid first-quarter performance that appears to be sustainable amid strong underlying trends, BofA Securities said in a Friday client note.

The cybersecurity company reported an adjusted earnings beat late Thursday as revenue surged 21% year over year. SentinelOne maintained its full-year guidance, while announcing a plan to reduce full-time employees by around 8%.

"The quarter highlighted strengthening execution and continued platform traction," BofA analyst Tal Liani wrote. "Importantly, growth is becoming more diversified: (artificial intelligence) security (annual recurring revenue) nearly doubled, while data and cloud ARR accelerated."

However, the stock slid 12% intraday Friday.

Liani attributed the sell-off to SentinelOne's "conservative" guidance that raises questions around growth durability. But Liani views the pullback as an attractive entry point for investors, citing underlying momentum.

BofA upgraded its rating on the stock to buy from neutral and raised the price target to $20 from $16.

"Our upgrade reflects growing confidence in the durability of 20%+ revenue growth, a clear path to margin expansion, and tangible signs of improved execution across new markets and customer segments," Liani said.

The company's "conservatism" likely reflects a prudent approach under a new chief financial officer, rather than concerns over demand deterioration, Liani said. SentinelOne appointed Sonalee Parekh as CFO in March.

SentinelOne expects to incur a one-time charge of approximately $25 million in connection with its restructuring plan.

"We have been actively refining our team structures and go-to-market focus, while accelerating our internal use of AI," Chief Executive Tomer Weingarten said during an earnings call Thursday, according to a FactSet transcript.

The layoffs will drive about $45 million in annualized cost savings, Parekh told analysts.

"This provides us with the financial flexibility to purposefully reinvest in our key growth areas, while continuing to drive significant operating margin expansion," Parekh said. "With our strong growth profile, clear technology leadership, and growing structural tailwinds, we have all the ingredients to scale into a multibillion-dollar, highly profitable, durable business."

Price: $15.87, Change: $-2.16, Percent Change: -11.96%

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