Morgan Stanley upgraded Twilio (TWLO, Financials) to Overweight from Equal-Weight, citing improving execution and a clearer path to profitability. The firm also raised its price target for the stock to $160 from $144.

• Warning! GuruFocus has detected 2 Warning Sign with TWLO.

Analyst Meta Marshall said the stock was a good purchase because the recent selloff after the fourth-quarter results was excessive. Compared to industry rivals, the company saw that Twilio trades at 19 times expected free cash flow, rather than 24.5 times.

Morgan Stanley praised Twilio's developments in cross-selling initiatives and growing operational margin outperformance confidence. The company's fourth-quarter exit growth rate also caught the attention of the business as a positive indication that Twilio is following its long-term plan. Should sales growth slow down, operational margins might surpass projections.

Though Morgan Stanley thinks this may be accomplished a year early, Twilio management is aiming for 2122% operating margins by fiscal 2027. Key factors listed by the company were revenue upside, operational efficiency, cost cuts, AI adoption, and a change in product mix toward higher-margin sectors. Supported by great sales momentum and new feature development, Twilio's segment unit is also predicted to break even by the second quarter of 2025.

Morgan Stanley sees the stock's recent drop as excessive and positions Twilio as a buying prospect with ahead of schedule predictions for sustained development and profitability increases.