Like every other industry, the numbers for software companies are being lowered due to the ongoing COVID-19 issues across the globe, and while consumers and businesses continue to need the applications the enterprise software companies provide, buying shares in this environment could still be dangerous.
While acknowledging the challenges the spread of coronavirus has had on the software sector, the analysts at Jefferies remain positive on some of the top companies that have strong recurring revenue. Toss in the fact that many of the top companies have been hit incredibly hard already, investors with nerves of steel may want to consider scaling in some small capital to the companies Jefferies continues to remain bullish on.
The Jefferies analysts have five top companies that stand out, as the multiples applied to all of them have dropped substantially during the recent bout of selling and volatility. All remain Buy-rated at Jefferies as well.
Adobe Systems
Shares of this high-profile old-school software company have backed up in price and are offering the best entry point in quite some time. Adobe Systems Inc. (NASDAQ: ADBE) operates in three segments: Digital Media, Digital Marketing and Print and Publishing. The Digital Media segment provides tools and solutions that enable individuals, small and medium businesses, and enterprises to create, publish, promote and monetize their digital content.
Top Wall Street analysts see the company benefiting from artificial intelligence, predictive analytics, automation bots, speech recognition and natural language processing and image recognition. Some analysts anticipate that earnings may increase a solid 30% or more in the coming year.
Wednesday, the software company reported earnings per share for the most recent quarter that topped the consensus estimate. Revenue of $2.99 billion also exceeded analysts’ expectations for the quarter. Adobe posted a net margin of 26.4% and a solid return on equity of 31.5% as well.
Jefferies has a $385 price target on the shares, while the Wall Street consensus target is $360.46. Adobe Systems stock closed on Wednesday at $315.23, down over 5% on the day.
Intuit
This company hits all the metrics in the technology sector for accounting needs. Intuit Inc. (NASDAQ: INTU) is a provider of business and financial management solutions for small and medium-sized businesses, financial institutions, consumers and accounting professionals.
Products and services include TurboTax, QuickBooks, Quicken, small business financial management and payroll processing, personal finance and tax preparation and filing and online banking services through its Digital Insight acquisition. Intuit also offers products on a software as a service (SaaS) platform across all its business divisions.
Intuit has served small businesses and accountants with QuickBooks for more than 20 years. The company was an early innovator in cloud accounting when it first launched QuickBooks Online in 2001. QuickBooks Online has more than a million paying subscribers, cementing its market leadership as small businesses shift to the cloud.
Over 40% of small businesses are using either Quickbooks Online or Quickbooks Desktops, while 35% are using Excel or manual paper accounting. The Jefferies team remains very positive on the shares and noted that they think the company is one of the firm’s most defensive names, with subscription-based small business accounting and predictable tax business.
Investors receive a 0.79% dividend. Jefferies lowered its $330 target price to $325. The consensus price objective is $297.88, and Intuit stock closed well below those levels at $261.12, down just over 3% on Wednesday.
Microsoft
This is perhaps the top legacy software and cloud technology stock, and it has a massive $133.8 billion sitting on the balance sheet. Microsoft Inc. (NASDAQ: MSFT) manufactures, licenses and supports a wide range of software products. It is also considered one of the best companies to work for.
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