Technology

Technology Momentum Giants Highlight Jefferies Top Stocks to Buy This Week

RingCentral

This smaller cap company could be a great takeover target, and it is a member of the Jefferies Franchise Picks list. RingCentral Inc. (NYSE: RNG) offers a cloud-based solution for business communications that replaces legacy and expensive on-premise communications systems. It is delivered as an application that follows the user regardless of device (office phone, smartphone, desktop, tablet). Features include voice, text, fax, audio conferencing and integration with document and customer relationship management systems.

For some time, Jefferies has believed the company has multiple catalysts, including continued traction with mid/enterprise customers, increased partner traction, international expansion and continued dislocation in the industry from legacy PBX/UC vendors.

Last year, Avaya entered into a strategic partnership with RingCentral in which it will introduce a new unified communications as a service (UCaaS) solution. Under the agreement, RingCentral will contribute $500 million to the deal and will be Avaya’s exclusive provider of UCaaS solutions.

Jefferies feels the potential for growth is high:

We hosted virtual meetings with management and came away incrementally positive. Unsurprisingly, the Avaya partnership was a focus, and management highlighted that the ramp is going as expected, and the product is gaining traction with channel partners and end customers. The company maintained its prior view that Avaya Cloud Office will have a much more meaningful financial impact in 2021 given the ramp and lag time between deal closings and go-lives. In addition, mgmt. reiterated that the company remains well positioned for an increasingly mobile/distributed workforce, and we continue to see the Work From Home shift as a tailwind for the company. As for competitive threats, we believe that Ring Central’s tech and relationships are substantial, but also highlight that the total addressable market of ~400 million seats should leave room for multiple winners. Our 2021 revenue estimate is ahead of consensus.

Jefferies recently raised its price target to $290 from $245. The consensus target is $277.14, and RingCentral stock closed at $270.25 on Monday.

ServiceNow

This stock had an incredible 2019 and remains a top pick. ServiceNow Inc. (NYSE: NOW) develops and sells a hosted, subscription-based suite of services designed to automate various IT department functions, such as help desk, operations management and change/release management.

The company also sells a number of applications that automate various self-service related applications outside of the IT department, such as HR onboarding, facilities requests and governance, risk and compliance.

ServiceNow has consistently posted strong quarterly results and the analysts feel good about where the company is headed for the rest of 2020, they said this in the research.

We recently spoke with a couple of ServiceNow-related industry contacts to gauge the demand environment. Overall, our checks indicated that while new bookings slowed early during the crisis, the brunt of deal and implementation delays were felt in April and early May with improvement beginning in mid-May. In addition, our conversations suggest a further pickup is expected in June and 2H. One of our contacts noted that a majority of new deals are on the smaller side, and primarily from existing customers as work from home appears to create additional demand for automation. In addition, as it relates to the Federal business, we were told that NOW’s FedRAMP High and DOD IL4 certifications received in the second half of 2019 are driving broader interest from more agencies.

The $375 Jefferies price objective compares with the $370.23 consensus price target. ServiceNow stock closed well above both levels on Monday at $392.50.

These four stocks all offer investors strength in their specific technology silos and the ability to generate some significant portfolio alpha. These top companies are suitable for growth accounts that have a larger degree of risk tolerance.

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