Funding agency Goldman Sachs has revised its 2020 financial forecast, and the outlook is decidedly grim. The place simply 10 days in the past, Goldman was predicting that GDP would expertise a 5% contraction in Q2, the replace places the forecast at a 24% second-quarter contraction. That’s a depression-style quantity, and Goldman doesn't sugar-coat it.
What the financial institution does do, nevertheless, is to attempt to prolong its studying into 2H20, and searching ahead the probabilities is probably not as dangerous. The financial system was robust as 2019 ended, and even in January and February the roles numbers remained extremely constructive – and Goldman sees that underlying power coming again within the second half. The financial institution predicts a pointy rebound within the third and fourth quarters, with progress hitting 12% in Q3 and 10% in This fall. Buyers ought to anticipate, nevertheless, an financial contraction for the complete yr.
Goldman doesn’t depart their forecasts on the macro degree. In a report on COVID-19’s influence on the tech sector, analyst Brian Essex adjusts his outlook on an array of shares, in an try and type the wheat from the chaff. Of the potential progress shares, positioned to broaden regardless of the creating recession, Essex says, “We usually favor corporations with subscription and recurring income fashions which give sturdy income and a excessive diploma of visibility. We additionally want a excessive proportion of home income with giant enterprise and/or (U.S.) authorities publicity.”
We’ve taken three of Goldman Sachs’s Purchase-side calls, and pulled their knowledge from the TipRanks database. These are tech corporations, principally within the mid- to large- market cap vary, and powerful profiles in cybersecurity and knowledge evaluation. Their footprint makes them fitted to distant work, giving them a step up on survival within the coronavirus epidemic, whereas their agency place within the info financial system provides them a gentle move of enterprise, whilst economies stutter.
FireEye, Inc. (FEYE)
The primary GS inventory decide we’ll look at is FireEye, a cybersecurity supplier for the high-end blue-chips, counting amongst its shoppers Goal, JPMorgan, and Sony Footage. Just like the financial system usually, FireEye ended 2019 on a excessive word, clearly proven by the corporate’s This fall earnings. EPS got here in 75% above estimates, at 7 cents, and grew 17% year-over-year. Income additionally beat each the forecasts and year-ago quantity, coming in at $235 million.
FireEye’s success was constructed on its providers, that are very a lot in demand in a tech-based info financial system. The Silicon Valley firm gives its clients safety towards cybersecurity and malware assaults, and analytic software program to seek out safety dangers. The corporate introduced in $889 million in revenues final yr, and confirmed sequential earnings positive aspects in every quarter.
In his notes on FEYE, Goldman’s Essex notes the corporate’s publicity to present financial strains, with potential declines in product income, however goes on to level out FireEye’s bigger strengths: “We anticipate Incident Response and Menace Intelligence to realize traction as organizations look to research and safe their IT infrastructure with out the necessity for bodily intervention. Moreover, roughly 25% of the corporate’s income is authorities associated, which we view as one of many extra secure sources of income on this setting.”
In delicate deference to the present exhausting occasions, Essex lowers his worth goal on FEYE by $2, to $16, however nonetheless sees a powerful 65% upside to the inventory. His Purchase score is an improve from impartial, reflecting that progress potential. (To observe Essex’s monitor report, click here)
FireEye has a Average Purchase analyst consensus score, based mostly on a good cut up between four Buys and four Holds. The share worth is right down to $11, making this tech firm extremely reasonably priced, and the typical worth goal of $19 suggests room for 74% progress within the subsequent 12 months. (See FireEye stock analysis on TipRanks)
Palo Alto Networks (PANW)
The second cybersecurity firm on Goldman Sachs’ listing is one other Silicon Valley denizen. Palo Alto Networks develops safe cloud techniques and superior firewalls, important software program within the rising cloud computing phase. Malware assaults have been up in 2019, and PANW’s providers have been in excessive demand.
That demand may be seen within the firm’s current fiscal Q2 report. The outcomes are fascinating, as a result of they cowl a interval together with each the top of 2019 and January 2020, and so embrace the start of the coronavirus epidemic. Q2 earnings have been strong, at $1.19 per share they beat the forecast by 6.three%, but in addition down year-over-year. Income missed the estimate by three.1%, however the $816.7 reported confirmed robust yoy progress. On the finish of Palo Alto’s fiscal Q2, PANW shares have been up 5.1% year-to-date; however as the underside fell out of the market, the inventory is now down 36% ytd.
Nonetheless Palo Alto Networks is a well-established firm in an important software program area of interest, and Essex sees that basis as the important thing level. He reiterates his Purchase score on the inventory, though he does scale back his worth goal by 26% to $195. The brand new goal nonetheless implies a 21% upside for the inventory. (To observe Essex’s monitor document, click here)
In his feedback, Essex outlines the corporate’s robust factors, saying “[A] significant put in base continues to drive upkeep income progress, and we consider this income is sturdy over time. We anticipate the inventory to re-rate larger as soon as fundamentals normalize, and consider sufﬁcient runway for a number of enlargement for PANW, pushed by traction with next-gen safety options and inﬂection in product income progress.”
This inventory has attracted loads of curiosity from Wall Road’s analysts. PANW’s analyst consensus score is a Average Purchase based mostly on 29 evaluations, which embrace 17 Buys towards 11 Holds and 1 Promote. The inventory sells for $166.28, whereas the $232 common worth goal signifies a possible upside of 43% for the shares. (See Palo Alto Networks stock analysis on TipRanks)
Verint Techniques (VRNT)
Final on immediately’s record of tech suggestions from Goldman Sachs is knowledge evaluation firm Verint Methods. Verint produces each software program and hardware for enterprise intelligence, buyer engagement, safety, and surveillance analytic methods. The corporate caters to hundreds of company shoppers in 150 nations worldwide.
In a captivating transfer, Verint introduced in December that will probably be splitting into two unbiased public corporations. The transfer will separate Verint’s $1 billion buyer engagement enterprise from its $500 million cyber intelligence phase, as the present mixture is taken into account too giant and unwieldy by administration. The deliberate cut up might be carried out in levels by means of 2020, with completion scheduled simply after the fiscal quarter ending in January 2021. As a part of the cut up, VRNT is initiating a $300 million share buyback program.
On the similar time it introduced the deliberate cut up, Verint additionally introduced fiscal Q3 earnings. EPS beat each the forecast and the yoy quantity, coming in at 94 cents. Revenues, at $331 million, edged over expectations and grew 7.four% year-over-year.
In his feedback on Verint, Essex acknowledges that the deliberate cut up of the enterprise segments is a danger issue – however it's a recognized danger issue. He factors out Verint’s present standing: “Our numbers aren't altering materially as we consider our numbers have been beforehand comparatively conservative and the corporate has already migrated away from extra risky hardware and integration income.”
As with the opposite shares on this record, Essex is decreasing his worth goal. At $49, the brand new goal suggests room for a 22% upside and helps his Purchase score. (To observe Essex’s monitor report, click here)
This inventory is one other Average Purchase from analyst consensus view, based mostly on 2 current Purchase scores. At $58, the typical worth goal implies a premium of 45% from the present share worth of $41. (See Verint stock analysis on TipRanks)