One of the best ways to find out what tech gear the major companies in the United States and elsewhere are buying is go to a forum or conference and ask. That’s exactly what the analysts at Deutsche Bank did, and in a new research report with data from the recent Chief Information Officer Leadership Forum in Los Angeles, they report having industry conversations with top decision makers. While information technology budgets are expected to be flat to up 2% to 3% for 2015, that is still a huge amount of money to be spent on gear.
Not surprisingly, the focus among the top CIOs and their respective companies for 2015 and beyond remains similar to last year: private clouds, application security, big data and mobile enterprise apps. The Deutsche Bank team surveyed the CIOs on products, and here are the analysts’ favorite stocks to buy in the sector.
Arista Networks Inc. (NYSE: ANET) went public last June and has continued to be one of the hot tech IPO stories of the past year. The company delivers software-driven cloud networking solutions for large data center and computing environments. In addition, the company’s 10/40/100 Gigabit Ethernet switches offer scalability and performance and have over 2,700 customers and more than 2 million cloud networking ports deployed worldwide. The Deutsche Bank team thinks that the company could benefit from dual supplier requirements at the Web 2.0 and cloud portals, and they think Arista could see upside to the lofty 30% compound annual growth rates currently forecast.
The Deutsche Bank price target on the stock is $80. The Thomson/First Call consensus price target is $82.80. Shares closed Wednesday at $61.51.
Ciena Corp. (NYSE: CIEN) is a company that many analysts, including the Deutsche Bank team, believe could be one of the top winners in the increase in wireless spending expected in 2015. The analysts pointed out in the report that a majority of enterprise and Web/cloud data centers are in the process of running high-speed 40/100G optical interconnects between their data centers. They see Ciena as a solid winner from this theme and noted that more than 30% of sales are not from telecom.
Deutsche Bank’s price target is $24, and the consensus estimate stands at $23.90. Ciena closed Wednesday at $19.74 a share.
Cisco Systems Inc. (NASDAQ: CSCO) just reported earnings and the results were very impressive and included an increase in the dividend. The Deutsche Bank team said that 100% of the CIOs surveyed at the forum prefer to stick with the tech giant as their primary network vendor. The stock remains the analysts’ top mega-cap idea in the sector, on the theme of improving IT spending and a positive global macro environment.
Cisco investors are paid a solid 2.8% dividend, which will increase by $0.02 per share. The Deutsche Bank price objective is $32, and the consensus target is $28.63. Shares closed trading at $26.93 and were up solid in Thursday’s premarket trading.
F5 Networks Inc. (NASDAQ: FFIV) was absolutely eviscerated even after beating earnings estimates. Lower-than-expected revenue and earnings forecasts for the second quarter dampened investors’ enthusiasm for the stock in a big way. The Deutsche Bank team is sticking with it and noted that the potential for fundamental upside to consensus low double-digit revenue growth, and they feel that the fourth-quarter miss was in part due to a very aggressive sales forecast. They cited continuing strength in F5’s Next-Generation Security and Service Provider Layer 4/7 business. The analysts also stressed that cloud services are a positive new revenue stream.
Deutsche Bank lowered its price target to $140 from $150 in late January, while keeping a rating of Buy on the company. The consensus price target is $127.88, and shares closed Wednesday at $113.77.
The Deutsche Bank stocks to buy range from mega cap to small cap, providing investors with differing risk parameters to choose what fits best. The bottom line and message from the C-suite executives appears to be they would stick with the top companies in what is often a volatile industry.