Shares of Splunk (SPLK) rallied 11.3% on Tuesday after the company announced plans to fund its growth initiatives with a $1 billion investment made by Silver Lake.
As per the terms, Silver Lake will receive 0.75% convertible senior notes with an initial conversion price of $160 per share. The notes will carry a five-year maturity period unless repurchased, redeemed, or converted earlier.
Moreover, Chairman and Managing Partner of Silver Lake Kenneth Hao will be joining Splunk’s board of directors. (See Splunk stock chart on TipRanks)
“We’ve significantly evolved our business since we began our transformation to become a cloud-first company over two years ago, and today’s announcement reaffirms the strength of our business fundamentals, cloud strategy and high-growth trajectory,” said Doug Merritt, President and CEO of Splunk.
Furthermore, Splunk launched a security operations solution, Splunk Security Cloud, with which customers can secure and manage multi-cloud deployments while remaining agile to adapt to ever-evolving threats.
The company also announced plans to repurchase up to $1 billion worth of common stock in the open market, based on prevailing market prices or in privately negotiated transactions. The repurchase is intended to offset the dilutive effect of the notes.
Following the announcement, RBC Capital analyst Matthew Hedberg reiterated a Buy rating on the stock with a price target of $200. This implies 43.3% upside potential from current levels. The analyst is optimistic about the company’s security cloud platform.
The rest of the Street is cautiously optimistic about the stock with a Moderate Buy consensus rating based on 17 Buy and 12 Holds. The average Splunk analyst price target of $162.77 implies 16.6% upside potential from current levels.
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