By Senad Karaahmetovic
Shares of DocuSign (NASDAQ:DOCU) are down about 4% in pre-market Monday after Morgan Stanley (NYSE:MS) analysts downgraded to Underweight from Equal-weight.
The downgrade move is a result of an "uncertain, difficult transition ahead" for DocuSign, the analysts told clients in a note.
Key risks, such as post-COVID demand normalization, sales force productivity challenges, and leadership turnover, are already reflected in DOCU shares (down 64% YTD). However, the analyst sees several other headwinds facing DOCU, including Intensifying competition, e-signature commoditization, and pricing pressure.
The combination of these factors makes the analysts believe there is an "additional downside and an unattractive risk/reward relative to other SaaS/Future of Work peers."
"Even if DocuSign can return to a more attractive bull case 20%+ growth profile in the years to come after a successful transition and restructuring, we would not expect to be able to gain confidence in that growth trajectory any time soon given the near-term challenges… Further, when software investors eventually gain more comfort in the overall market, we think investors will return to the highest quality assets first – the amount of disruption, uncertainty and deceleration makes DocuSign more of a wait-and-see restructuring, transition, turnaround story," the analysts added.
The price target goes to $47 per share (down from $73), just shy of the Street-low price target of $44 per share. The slashed price target reflects lowered estimates, which are now slightly below consensus.
This marks the 9th rating downgrade for DocuSign shares since the start of 2022.