Just as the effects of the July 19 worldwide outage start to diminish, CrowdStrike (NASDAQ: CRWD) and Microsoft (NASDAQ: MSFT), two main protagonists of this event, are hit with a major lawsuit by Delta Airlines (NYSE: DAL).
Delta Air Lines has hired a law firm to sue Microsoft and CrowdStrike for compensation for the recent global cyber outage that disrupted flights.
The Atlanta-based airline has been the slowest among major U.S. carriers to recover, with over 2,200 flight cancellations on July 19 and over 6,000 cancellations. Analysts estimate the financial impact could be somewhere between $350 to $500 million for Delta.
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The final amount might be considerably higher, with an estimate of overall damages reaching $1.5 billion for the insurers.
Analysts were quick to react to the news, offering their opinions on how this lawsuit could affect CRWD stock.
CrowdStrike stock price
Currently, CRWD stock trades at a valuation of $258.81 after adding 1.03% in the latest trading session, softening a decline of 3.90%% in the previous five trading days.
However, the news of the lawsuit has prompted losses of 4.72% in pre-market trading.
From the technical analysis perspective, CrowdStrike shares have fallen below the floor of its rising trend channel in the medium to long term, indicating a weaker initial growth rate. The stock has also broken through support at $283, suggesting a further decline.
The volume balance is negative, weakening the stock in the short term. Additionally, the stock’s short-term momentum is strongly negative, with the relative strength index (RSI) below 30, reflecting increasing investor pessimism and the potential for further decline.
The falling RSI curve could be an early indicator of a sustained downward trend in the stock price.
CrowdStrike could face a potential 30% downside from current levels
CEO of Lupton Capital, Jonah Lupton, believes CrowdStrike has the potential for further decline, possibly another 20-30%, as he explained in his post on X on July 29.
According to Lipton, in addition to Delta Air Lines’s lawsuit, numerous similar lawsuits are anticipated to emerge in the coming weeks, likely after companies report their Q2 earnings and provide more precise insights into the impact on Q3 figures.
One estimate suggests that the airlines have collectively lost over $1 billion due to the outage. Microsoft’s response will be critical, whether they choose to settle these lawsuits out of court or contest them and potentially seek recompense from CrowdStrike.
Given the high level of uncertainty and potential financial exposure, CrowdStrike’s current valuation appears risky. Financial estimates for the next 12-18 months may need to be revised downward, with some of their $3 billion in cash reserves possibly being allocated to settle lawsuits and pay fines.
If Lupton’s estimates turn out correct and CRWD stock experiences a 30% decline, its price will fall to $181.167.
Despite the lawsuit, Wall Street analysts still believe in CRWD stock
Although the lawsuit will pose a significant setback for the cybersecurity company, analysts on Wall Street believe that CRWD stock will recover and view long-term effects as minimal.
According to a Morgan Stanley report on July 29, CrowdStrike is expected to recover from the recent massive outage due to its swift response. After a call with CrowdStrike partners, Morgan Stanley analysts, led by Hamza Fodderwala, noted that over 97% of impacted Windows sensors were back online as of July 25, with limited churn risk.
Despite removing CrowdStrike from its “Top Pick” list due to a recent 30% stock decline and near-term estimate risks, Morgan Stanley maintains an “overweight” rating with a $360 price target. Analysts believe the stock is nearing the bottom and see recent events as a short-term headwind for the next two to three quarters.
On the same date, JPMorgan analysts removed CrowdStrike from their Analyst Focus List following a recent IT outage caused by a Falcon content update file.
Although they maintain an “overweight” rating, analysts have lowered their price target for CrowdStrike to $330 from $400, citing expected near-term headwinds.
The July 19 IT outage initially harmed CrowdStrike’s reputation. However, JPMorgan praised the company’s strong incident management and transparency, noting that U.S. customers woke up to both the outage’s news and its resolution.
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