The Cowen team are confident enough in what they feel can be solid earnings reports that they are advising clients to purchase shares of two high-profile software stocks now in anticipation of the companies both coming in with numbers that are good enough to drive shares higher.
Salesforce.com
This company has been the momentum stock trader’s dream over the past few years as the demand for customer relationship management software has skyrocketed. Salesforce.com Inc. (NYSE: CRM) has been a super-hot name recently as buyout chatter has erupted on Wall Street and everybody from Microsoft to IBM has been mentioned as a potential suitor for the company. While no deal has been announced, the Cowen team feels that the mergers and acquisition rumors will not go away anytime soon.
They do point out that while the stock has somewhat decoupled from actual earnings data, they recommend owning the stock into the earnings release which is Wednesday, May 20, after the market closes. The Cowen team feels that the company will report upside to revenues and billings, and while there may be some currency headwinds selling to foreign customers, it should not be enough to derail fiscal 2016 guidance.
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The stock trades mostly in line with its fast organic software-as-a-service (SaaS) peer group, which many see as having the largest growth rate in 2015. Some feel the company should trade at a premium to the group. The company posted year-over-year billings growth way above estimates and saw margins expand by 1.75%. Many Wall Street analysts see the company’s growing portfolio of enterprise-class solutions as not only enhancing the brand, but helping to achieve access into bigger companies.
The Cowen price target for the stock is $83. The Thomson/First Call consensus price target is $76.74. The stock closed Tuesday at $71.48 a share.
Workday
This is another momentum stock traders have set sail on, and the volatility has been a roller-coaster for shareholders. Workday Inc. (NYSE: WDAY) is a leading provider of enterprise cloud applications for finance and human resources. Workday delivers financial management, human capital management and analytics applications designed for the world’s largest companies, educational institutions and government agencies.
Many Wall Street analysts feel that cloud has emerged as the future state for many large enterprises, a fact that should continue to broaden the channel of available business opportunities for Workday.
The Cowen team feels Workday could also post upside to revenue and billings when they report earnings on May 26. They see the company raising fiscal year 2016 guidance to 46.0% year-over-year from 43.5%. Again, the Cowen team is suggesting investors buy and own the stock before the earnings are reported. They acknowledge that the comparisons are difficult, but the key to the stock is more than 50% growth in billings in fiscal 2015, and they think the first-quarter earnings will be strong enough to support that thesis.
The Cowen price target for the stock is $111, and the consensus target $103.30. Shares closed Tuesday at $90.65 apiece.
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Cowen should be applauded for taking a stand. It is easy to take a long-term view on mega-cap tech stocks that have been around since the 1980s. It is quite another thing to make a bold call right in front of earnings.
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