Dynatrace (DT) stock surged about 5% in Tuesday’s pre-market trading after the Wall Street Journal reported that Starboard Value has bought a significant stake in the software company. The activist investor is pushing for changes to boost DT’s share price.
Claim 55% Off TipRanks
- Unlock hedge fund-level data and powerful investing tools for smarter, sharper decisions
- Discover top-performing stock ideas and upgrade to a portfolio of market leaders with Smart Investor Picks
Interestingly, Dynatrace is an AI-powered observability and security platform that helps enterprises monitor and automate their own software systems.
Starboard Pushes for Changes to Boost Dynatrace Stock
Citing the draft of the letter that Starboard is expected to send to Dynatrace on Tuesday, the Wall Street Journal noted that the activist investor is now one of the top five shareholders in the company and has been privately engaging with management over recent months.
DT stock has declined 18% year-to-date, with the activist investor noting that it has been underperforming its peers in the software infrastructure and cybersecurity space. Starboard believes that stagnant top-line growth has weighed on Dynatrace’s share price. Moreover, investors are doubtful about an improvement in the company’s business over the near term.
Starboard believes that Dynatrace should benefit immensely from more enterprises integrating AI into their operations. It sees the possibility of the company enhancing its margins and accelerating its share buybacks. While Dynatrace recently announced a new $1 billion share buyback plan, the activist investor expects the company to return more than $2.5 billion to shareholders over the next three years. It also expects Dynatrace to nearly double its free cash flow per share to more than $3.30.
Software companies have been under pressure amid fears of AI disruption. Moreover, M&A (mergers and acquisitions) activity has increased in the industry, with cybersecurity providers acquiring observability companies to expand their product portfolios. For instance, last year Palo Alto Networks (PANW) announced the $3 billion acquisition of Dynatrace’s peer, Chronosphere. Also, Cisco (CSCO) announced a $28 billion deal to acquire Splunk.
Is DT Stock a Good Buy?
While investors are concerned about Dynatrace, several analysts are optimistic due to the company’s new product launches and upcoming renewals of large contracts. Dynatrace scores a Strong Buy consensus rating based on 21 Buys and six Holds. The average DT stock price target of $48.38 indicates about 36% upside potential.
