3 UBS Favorite Software Stocks to Buy That Report Earnings Next Week
With a back-and-forth grinding market, it’s always difficult to spot sector trends. Every time it seems like there is a clear winner, a sell-off resets the table and technology investors especially are forced to start over. One thing is for sure, in the software segment of technology, some 2016 winners seem to be pretty clear, and a new research report from UBS is pretty clear about which way investors should look.
UBS concedes that 2015 has been difficult for the software makers, but things rebounded nicely in October, up 8%. The firm says the best plan for 2016 is to stay with the biggest platform-type players that carry reasonable multiple valuations. Three top companies stand out and are grabbing more than their fair share of corporate information technology spending, thanks to their platform attracting strategic commitments. All are rated Buy at UBS and all report earnings next week.
This company posted outstanding earnings for the second quarter, and it is one of Wall Street’s favorite large cap growth ideas now. Salesforce.com Inc. (NYSE: CRM) has been the momentum stock trader’s dream over the past few years. Many on Wall Street feel that while the stock trades mostly in line with its fast organic software-as-a-service (SaaS) peer group, which many see as having the largest growth rate in 2015, the company should trade at a premium to the group.
The company posted year-over-year billings growth way above estimates and operating margins expanded by 1.7%. Wall Street analysts see substantial billings growth going forward, and many have already raised their fiscal 2016 estimates on both revenues and earnings.
Its growing portfolio of enterprise-class solutions have not only enhanced the brand, but is helping to achieve access into bigger companies. And the company’s new analytics products are factored into many 2016 estimates and could provide upside. The company is expected to report third-quarter earnings next week.
Salesforce’s Platform business now generates $1 billion of annual subscription and support revenues, equal to about 16% of Salesforce’s total revenue mix. The Platform segment includes Force.com (enterprise-grade, hosted in Salesforce’s data centers) and Heroku (hosted on AWS, more of an elastic cloud, supports most new programming languages).
While many think that the company’s growth guidance could be conservative, Salesforce is constantly apart of Wall Street takeover chatter, and that tends to keep short sellers at a distance. UBS sees the valuation as reasonable and thinks the company comes in with a slight earnings beat, as comparisons remain tough.
The UBS price target for the stock is $89, and the Thomson/First Call consensus target is at $82.07. Shares closed Wednesday at $78.71.