This under-the-radar cloud stock could surge 60% and reach profitability next year, Bank of America says in double upgrade

Published Mon, Feb 13 202310:30 AM ESTUpdated Mon, Feb 13 20233:01 PM EST

Take another look at Fastly as the cloud computing firm doubles down on its key strengths, Bank of America said. Analyst Tal Liani double upgraded the stock to buy from underperform and raised his price objective, saying Fastly could reach profitability by next year on the back of its core technology and new management team. "Short term results could still fluctuate, but we focus on the potential value creation in the intermediate term, and believe Fastly has solid underlying foundations, which the new management team is aiming to expose, coupled with greater focus on security and edge cloud solutions," Liani wrote in a note Monday. "Fastly's new CEO, Todd Nightingale, has taken steps to streamline the product portfolio, pricing, and other operational aspects, and we believe this could drive revenue growth reacceleration and margin expansion, with the company reaching profitability by 2024," Liani added. FSLY 1D mountain Fastly shares 1-day Fastly debuted on the New York Stock Exchange in 2019 , along with other technology companies such as Lyft, Pinterest, Uber and Zoom. Fastly jumped as much as 60% in its first trading day. The following year, in 2020, the stock jumped more than 300%. Since then, shares have struggled, falling 59% in 2021 and then 76% last year. Now, however, shares could surge more than 60% from Friday's close to the analyst's new price target of $16 per share, up from a target of $10.50 previously. Fastly shares spiked about 20% during Monday trading. The analyst expects that Fastly management could execute on a turnaround strategy based on the company's core strengths. This follows the arrival of its new CEO, Nightingale, who joined Fastly in September. "Our positive view is based on our belief that Fastly's core technology/network is differentiated yet needs to be sharpened; the technology could serve as a solid foundation for the other adjacent services; and we also highlight the close relationships with the company has with the developer community," Liani wrote. What's more, Fastly is focusing on cutting costs and improving operating margins, which should help the firm in the year ahead. "We model operating margin to increase from -19% in 2022 to -7% in 2023 and believe the outlined turnaround plan sets the stage to reach profitability in 2024, with EPS reaching -29c next year vs. -64c for 2022," read the note. —CNBC's Michael Bloom contributed to this report.