Business

6 Software Stocks to Buy and 4 to Promote, According to an Analyst


What’s subsequent for enterprise software program shares? That relies upon which of them you decide.

Guggenheim Companions analyst John DiFucci launched protection of the group late Thursday, with some ideas on the place to place bets within the sector. DiFucci is new to Guggenheim, however a familiar name on the Street—at numerous occasions, he’s coated the software program sector for Jefferies, J.P Morgan, Oppenheimer, and a few place which have since disappeared—Bear Stearns and Donaldson, Lufkin & Jenrette.

DiFucci’s calls will present traders with appreciable room for debate. 

He set Promote rankings on



Okta

(ticker: OKTA),



Workday

(



WDAY

),



Salesforce

(CRM), and



Snowflake

(SNOW).

DiFucci has Buy rankings on



Oracle

(ORCL),



Palo Alto Networks

(PANW),



CrowdStrike

(CRWD),



Splunk

(SPLK),



Zscaler


(ZS), and



Progress Software

(PRGS).

The analyst launched three shares with Impartial rankings:



Microsoft

(MSFT),



Cloudflare

(NET), with an $82 goal, and



ServiceNow

(NOW).

Right here’s a rundown on his calls, beginning with the Promote rankings.

Okta: Whereas he sees “a large, expanding and underappreciated opportunity ahead” for the identity-management software company, he sees “a couple of difficult quarters near term.” His $89 goal value is 16% under Thursday’s closing degree.

Workday: DiFucci says it is going to be “challenging” for Workday, which sells enterprise HR and finance software, to meet fiscal yr 2023 income steering, given the affect of a softer financial system on the corporate’s enterprise. His goal value of $134 implies about 22% draw back from Thursday’s shut.

Salesforce: The analyst says natural progress is slower on the iconic cloud software program firm than many traders notice, and provides that Salesforce spends “materially more” than friends to seize new enterprise. He’s additionally cautious of the corporate’s historic tendency to spend free money circulate on acquisitions. DiFucci sees danger to (*6*) of reaching $50 billion in annual gross sales by fiscal 2026. He sees about 20% draw back within the inventory, setting a goal of $150.

Snowflake: DiFucci says that Snowflake is “a standout in terms of its technology and its frictionless business model,” and has change into “the preferred vendor for cloud data warehousing.” However he’s “cautious in the face of a potential recession,” and doesn’t suppose the corporate is immune, opposite to the corporate’s view. His $125 goal implies 28% draw back.

Right here’s a have a look at his Buy-rated picks:

Oracle: DiFucci is bullish on Oracle’s transition to the cloud, and sees the corporate sustaining excessive single-digit income progress and double-digit revenue progress. He notes {that a} modest acceleration within the database enterprise alone may drive the corporate to double-digit revenue features—and he additionally notes that the corporate is making progress in competing in opposition to



Amazon
.

com, Microsoft and Google in cloud computing providers. His $107 goal implies a possible 38% achieve.

Palo Alto Networks: The analyst says the safety software program firm will simply hit (*4*). “The company is well positioned to benefit from the shift to Zero Trust, and a likely vendor consolidation trend in the security market,” he writes. His $625 goal suggests 20% upside for the inventory.

CrowdStrike: Th endpoint safety firm is “a well-run software company that exemplifies the attractive characteristics of the industry,” he writes. “We expect it to convince any skeptics that a security company can represent enduring value.” His $270 goal suggests a possible achieve of 34%.

Splunk: He says that estimates “are simply too low” for Splunk, which makes software program used to monitor IT methods. His $160 goal value factors to a possible return of practically 40%.

Zscaler: “Ultimately, we believe Zscaler will maintain its leadership in cloud-based network security,” he writes. His $233 goal suggests a possible return of about 29%.

Progress Software: DiFucci says the corporate is utilizing money circulate from its core OpenEdge software program growth platform to reinvest in accretive acquisitions. “Management has proven it has an ability to execute in a disciplined manner,” the analyst writes. His $60 goal suggests 25% upside.

Lastly, right here’s his tackle the three Impartial rated shares.

Microsoft: Whereas he sees midteens precent progress in income and free money circulate for the software program large, he additionally sees “continued declines” in Home windows which he thinks isn’t embedded in present Avenue estimates. “At current levels, we see a balanced risk/reward profile and a stock that is fairly valued,” he writes, setting a goal of $292, 1% above Thursday’s shut.

Cloudflare: Whereas he likes the expansion story at Cloudflare, DiFucci doesn’t see a lot upside given a valuation that appears excessive relative to friends. “To price the stock much higher …seems to introduce more risk than we’re comfortable with,” he writes. His $82 goal implies simply 4% potential progress from right here.

ServiceNow: Whereas ServiceNow is “a very well run company,” the analyst says the workflow administration software program firm will possible miss its long-term subscription income objectives, particularly if there’s a extended recession. His $510 goal value is barely under Thursday’s closing degree.

Amid a broad rally in expertise shares, virtually the entire shares talked about listed below are buying and selling increased Friday, led by Workday, up 5.5%, and Progress Software, up 3.5%. Three shares within the group are decrease, with Snowflake off 1.2%, ServiceNow 0.7% decrease and Okta down lower than 1%.

Write to Eric J. Savitz at [email protected]



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