In the last week of November, Credit Suisse held its twenty-third annual Technology, Media, & Telecom (TMT) conference. It’s a popular annual industry event, connecting marketers and tech enthusiasts. Attendees get up-to-date info on the latest trends in the global tech industry.
This year’s three-day event was no exception. It was well attended, with presentations by more than 20 tech companies, ranging from corporate giants like Microsoft to edgier companies like Splunk. Our attention was caught by three software companies in particular.
None of the three are new companies – they’ve been around the block a few times – but all three are flagged in the TipRanks database as "Strong Buy" stocks. A closer look shows that all have over 20% upside potential, but that’s not the only thing they have in common. All three inhabit the cloud-based Software-as-a-Service ecosystem, and are known for strong execution.
5-star Credit Suisse analyst Brad Zelnick reviewed all three of these stocks. Zelnick is an expert on the tech industry, and is ranked #139 out of more than 5,700 Wall Street financial analysts. This puts him in the top 3% of the analyst corps. Let's take a closer look:
Upland Software (UPLD)
Every office needs to manage the workflow, and that’s where Upland comes in. The company’s products offer solutions for a wide variety of essential aspects in business: project management, document automation and security, and enterprise sales, and on the customer-facing end, contact center and customer experience management.
Upland expands its product line by both developing new software and acquiring smaller SaaS companies and absorbing their systems. At the end of November – on the same day the Credit Suisse conference began, in fact – Upland announced a new fungible loan, of $190 million, which will be applied toward new acquisition. The new loan adds to the $350 million the company already carries in outstanding loans. While substantial, the debt is sustainable. Upland uses the credit to generate returns, and the company’s share appreciation is robust.
In Q3, Upland showed mixed EPS results. Earnings jumped from 38 cents per share one year ago to 52 cents per share now – but that number missed the 57-cent forecast by 8%. Reported quarterly revenues were within 1% of the forecast, at $55.07 million. This was up 48% year-over-year. Approaching the end of the calendar year, UPLD shares are up 33%, solidly outperforming the S&P 500 index.
Zelnick lays out the firm’s view of UPLD, saying, “We appreciate Upland’s unique and durable approach to creating value by acquiring often overlooked and under-loved SaaS companies and realizing significant synergies by integrating these businesses with its UplandOne platform... We particularly like management’s track record (25 acquired companies) and see much of the company’s future success within its control…” Zelnick’s $48 price target on UPLD suggests a 32% upside to the stock – a hefty potential well in line with his Buy rating.
Upland’s five most recent analyst ratings are all Buys, making the analyst consensus on this stock a unanimous Strong Buy. A look at the average price target shows that Zelnick is somewhat conservative in his outlooks – UPLD shares have an average target of $51.20, implying room for 41% growth on the upside.
Intuit (INTU)
Our second company is best known for the products it offers to the general public rather than to businesses. In fact, it’s likely you have used an Intuit product – the company is the producer of the popular tax reporting software TurboTax. On the small business end, Intuit offers Quickbook. These products, and others in the company’s line, exemplify Intuit’s name: they aim to make complex matters intuitive and easy for just about anyone.
Easing navigation through modern life’s bureaucracy has been profitable for Intuit. The company brings in well over $5 billion in annual revenues, with 95% of that based on customers and activities in the US. In Q3 2019, INTU reported EPS of $5.55, for a 2% forecast beat and 15% growth year-over-year. The $3.27 billion in quarterly revenues were up 11% from the year-ago quarter.
The company’s robust quarterly gains continued a long trend. INTU stock is up 185% over the past five years. In 2019, INTU has gained 29%, outpacing the S&P 500 gain of 24%. Not many companies can boast sustained growth of this magnitude.
In his comments on Intuit, Zelnick described an upbeat path forward for the company, writing, “Our blue-sky scenario assumes (1) better-than-expected penetration of QuickBooks Online in the US and (2) sustained growth in the Consumer Tax business as TurboTax Live takes share from the Assisted tax prep market.” His $300 target price implies an 18% upside for further growth.
INTU’s Strong Buy consensus rating is based on 3 "buy" and 1 "hold" ratings issued in the past 3 months, indicating analyst confidence. Shares currently sell for $256, and the average price target is $306, suggesting the stock could rise about 20% from current levels.
Salesforce (CRM)
Among cloud software companies, Salesforce was an early leader. The company has become the best-known name in Customer Relationship Management (that’s the origin of the ‘CRM’ ticker). Salesforce products offer cloud solutions for sales and commerce tracking, databases, marketing, customer service, and analytics to businesses of all scales.
With a market cap of $138 billion, Salesforce is already big – but last month the company said that it expects to double in size by fiscal year 2024. Revenues for fiscal 2019 were over $13 billion – by FY24, the company estimates it will bring in over $34 billion per year. In its most recent quarterly earnings report, CRM revealed $4.5 billion in revenues, beating the forecast by $50 million. EPS came in at 75 cents, 13% above the 66-cent expectation.
Long term, CRM has been growing steadily. The stock is up 187% in the last five years, although that growth has slowed in calendar year 2019. CRM is up only 15% this year, noticeably trailing the S&P average gain. It’s still a steady appreciation, however, and combined with impressive revenue numbers gives a healthy outlook. Zelnick says, of the company’s path forward, “The target to double revenues in four years at this scale is a testament to the strategic nature of Salesforce and its leadership…”
On his overall view of the company and its likely forecast, Zelnick writes, “Better than expected market share gains with large enterprise, increased cross-sell across the current customer base, and continued operational efficiencies driven by significant economies of scale result in faster revenue growth from F2019 to F2029…” His $185 price target suggests a 17% upside potential.
A look at the averages shows that, once again, Zelnick is on the cautious side. CRM shares sell for $158, and the average stock-price forecast of $192 shows a possible upside of 21%. The Strong Buy consensus rating, based on 23 Buys and 1 Hold, shows that Wall Street is upbeat on Salesforce.
