Apps & Software
Corporate Software Demand Stays Red Hot: Stifel's 4 Focus Stock Picks
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The evolution of software as a tool for business has been a long and continuing strong growth story. Companies increasingly are upgrading and adding new software as a productivity enhancement to improve operations and help evolve business, as well as to protect important digital assets.
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A new Stifel report notes that recent commentary from management executives toward the sector was extremely positive from a demand standpoint. The analysts feel that the software group will see growth well above the trend line in coming years, driven by this secular demand that shows no signs of abating.
Four top companies are focus picks at Stifel. While all are rated Buy, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Autodesk
This stock has been sizzling and looks poised to move higher. Autodesk Inc. (NASDAQ: ADSK) provides 3D design, engineering and entertainment software and services worldwide. Its AutoCAD Civil 3D is a surveying, design, analysis and documentation solution for civil engineering, including land development, transportation and environmental projects
Its BIM 360 is construction management cloud-based software. AutoCAD is software for professional design, drafting, detailing and visualization, while AutoCAD LT is drafting and detailing software and computer-aided manufacturing (CAM) software for computer numeric control machining, inspection and modeling for manufacturing.
The company also provides Fusion 360, a 3D CAD, CAM and computer-aided engineering tool, as well as Industry Collections tools for professionals in architecture, engineering and construction, product design and manufacturing, and media and entertainment collection industries.
Autodesk provides Inventor tools for 3D mechanical design, simulation, analysis, tooling, visualization and documentation. Vault is data management software to manage data in one central location, accelerate design processes and streamline internal/external collaboration. Maya and 3ds Max software products offer 3D modeling, animation, effects, rendering and compositing solutions, and Shotgun is cloud-based software for review and production tracking in the media and entertainment industry.
Stifel noted this after meeting with Autodesk management recently:
Coming off the heels of Autodesk’s healthy fiscal first quarter 2022 print, the conversation primarily spanned Autodesk’s strategy and opportunity in Manufacturing, with a focus on the growing cloud adoption of design software, Fusion 360, Upchain, recent news around a potential transaction with Altium, and generative design. Overall, we come away confident in Autodesk’s ability to continue gaining share in manufacturing giving its leading cloud-based offerings. More broadly, we continue to believe Autodesk remains very well-positioned as AEC/manufacturing end-markets recover and think the company has a number of secular (digital transformation of the construction lifecycle, convergence of design/make, etc.) and company-specific unit and pricing drivers to sustain mid-teens top-line growth along with operation margins and free-cash-flow expansion in coming years.
Stifel has a $342 price target on Autodesk stock, which compares with a Wall Street consensus target of $333.24 and Monday’s closing price of $280.52 per share.
24/7 Wall St.Elastic
This off-the-radar stock has traded sideways since March and could be poised to explode higher. Elastic N.V. (NASDAQ: ESTC) delivers technology that enables users to search through structured and unstructured data for a range of consumer and enterprise applications. It primarily offers Elastic Stack, a set of software products that ingest and store data from various sources and formats, as well as perform search, analysis and visualization.
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Its Elastic Stack product comprises Elasticsearch, a distributed, real-time search and analytics engine and data store for various types of data, including textual, numerical, geospatial, structured and unstructured. Kibana is a user interface, management and configuration interface for the Elastic Stack. Beats is a single-purpose data shipper for sending data from edge machines to Elasticsearch or Logstash, which is a data processing pipeline for ingesting data into Elasticsearch or other storage systems.
Elastic also provides software solutions on the Elastic Stack that address cases, including app search, site search, workplace search, logging, metrics, application performance management, business analytics and security analytics.
The company’s products are used by individual developers and organizations of a range of industries. Elastic has a strategic partnership with Confluent to enhance existing product integrations and jointly develop new capabilities that help users to combine the benefits of the Elastic Stack and Kafk.
Stifel is very positive on this company’s potential:
We remain bullish on shares of Elastic, given the increasing scale of Elastic’s SaaS business, our belief this unit sustains well above corporate revenue growth rates, and management’s recent decision to change its open-source licensing model to SSPL and the Elastic License from Apache 2.0. We continue to believe this licensing change, along with management’s increasing focus on its consumption-based SaaS solution (28.9% of fiscal fourth quarter 2021 revenue), the ongoing expansion of Elastic’s product portfolio beyond Search into Observability and Security, as well as improving operational efficiency and profitability, should generate continued multiple expansion in coming quarters.
The Stifel price target is $180, and the lower consensus target is $172.06. Monday’s final trade was at $137.16 a share.
24/7 Wall St.Unity Software
Shares of this top company have come in nicely since the beginning of the year and are offering perhaps the best entry point for all the focus picks. Unity Software Inc. (NYSE: U) operates a real-time 3D development platform that provides software solutions to create, run and monetize interactive, real-time 2D and 3D content for mobile phones, tablets, PCs, consoles and augmented and virtual reality devices.
The company offers its solutions directly through its online store and field sales operations in North America, Denmark, Finland, the United Kingdom, Germany, Japan, China, Singapore and South Korea, as well as indirectly through independent distributors and resellers worldwide.
The analysts noted this about Unity Software’s prospects:
Unity is focused on expanding its Create and Operate solutions to other industry verticals, and already has the top 10 automobile companies as customers. Mr. Riccitiello reiterated his statement made during the IPO process, that non-gaming verticals should exceed the gaming industry as a percentage of revenue within 4 years. On the advertising side, the IDFA changes have remained front and center for the likes of Unity, Facebook, and Google. Google recently announced similar changes on its Android platform, but Unity remains confident it can gain market share using its unique approach to data analytics through games on the platform (71% of mobile games in 2020) and 3 billion monthly active users.
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The $125 Stifel price target is above the $121.13 consensus target. Monday’s final Unity Software stock trade was reported at $122.30.
Twilio
This may be the top stock to own in this fast-growing segment. Twilio Inc. (NYSE: TWLO) provides cloud communications platform that enables developers to build, scale and operate communications within software applications through the cloud as a pay-as-you-go service in the United States and internationally.
The company offers programmable communications cloud software that enables developers to embed voice, messaging, video and authentication capabilities into their applications through application programming interfaces. The company also provides use case products, such as a two-factor authentication solution.
The past year and a half has proved to be very solid for the company, and the analysts said this:
The pickup in demand the company has seen for its core solutions in response to the shift to digital and the opportunity for Twilio to expand into more complex customer engagement use cases with solutions like Flex and Segment. Segment in particular seems poised to play a significant role in helping end-users deliver more differentiated, personalized experiences, while Flex sits at the center of a sizable cloud contact center migration opportunity that is expected to play out over a number of years. From a competitive standpoint, Twilio’s deep relationships with carriers around the globe and the truly omni-channel nature of its offerings (voice, messaging, email, video, etc.) have
Stifel has set a massive $500 price target. The much lower $463.13 consensus is still well above the most recent close at $343.07 a share.
24/7 Wall St.These four sizzling software stocks are ideal for aggressive growth accounts with a higher risk tolerance. They also offer the best entry points this year and could be big alpha producers for the latter half of 2021.
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