The technology sector has been a huge help to the markets of late, with a particular focus on cloud stocks. The rapid expansion in cloud operations in business has created a large market for companies providing these services. As a result, Credit Suisse took a very bullish look at three tech stocks that stand to make solid runs in the near future.
The brokerage firm singled out Salesforce.com, Inc. (NYSE: CRM), Microsoft Corp. (NASDAQ: MSFT) and Autodesk Inc. (NASDAQ: ADSK) as its top performers in the industry.
First, Salesforce was initiated with an Outperform rating and a $110 price target, implying an upside of nearly 30% from the previous close $84.95.
Credit Suisse differentiates itself on Salesforce by constructing a bottom-up implied market share build. Specifically, the firm estimates that Salesforce will continue to garner market share gains across its various cloud offerings over the next three years, at least. That, coupled with disciplined expense management, should enable the company to generate significant operating cash flow over time and drive the shares higher.
Shares of Salesforce were last seen up 1.3% at $86.06 on Thursday, with a consensus analyst price target of $96.00 and a 52-week trading range of $66.43 to $86.42.
Microsoft was initiated with an Outperform rating and an $80 price target, compared with a $67.83 previous closing price. Credit Suisse is forecasting upside of 18%.
Credit Suisse believes that there is significant earnings power potential over the next few years, which could be unlocked through a couple ways:
- Strong commercial cloud growth
- Higher cloud gross margins over time due to economies of scale
Overall, this increased mix shift of cloud revenue leads to accelerating gross profit dollar growth, ultimately driving the firm’s above-consensus earnings estimates. Given the belief that Microsoft is leveraged to several attractive secular themes such as public cloud momentum, digital business transformations, and considering the continued cost discipline and current valuation, Credit Suisse views the current risk-reward profile of Microsoft shares as attractive.
Microsoft shares were trading at $67.75. The 52-week trading range is $48.04 to $68.31, and the consensus price target is $69.55.
Autodesk was initiated with an Outperform rating and a $115 price target. The stock previously closed at $90.23, and the implied upside is 27.5%.
Credit Suisse detailed its thoughts on Autodesk in its report:
Our Outperform thesis on Autodesk shares stems from what we view as significant free cash flow (FCF) potential, which could be realized from (1) successfully transitioning from a license to a subscription-based revenue model, (2) converting Non-Subscribers and Non-Paying Users (Pirates) to paid subscribers, and (3) maintaining expense discipline. The business model transition should drive a significant uplift in annual recurring revenue (ARR) over the next few years, creating a recurring revenue model, for which we believe investors will be willing to pay a premium. We view Autodesk as well positioned to execute against its model transition goals
Shares of Autodesk were changing hands at $90.18. The consensus analyst target is $87.24. The 52-week range is $49.82 to $90.94.