In what has been an up and down quarter for technology, especially for some of the chip companies as demand for smartphones in China seems to have slowed, other areas have been absolutely on fire. Cloud computing and the impact of social media have continued growing almost unabated and show absolutely no signs of slowing down this year, next year or in the foreseeable future.
A recent Jefferies research report presents the firm’s top growth ideas for investors, and two of those ideas absolutely crushed first-quarter earnings estimates and raised the guidance going forward. While not suitable for more conservative accounts, the growth stock selections at Jefferies have solid continued upside potential.
Amazon
This company has finally put all the pieces together and has become an earnings juggernaut. Amazon.com Inc. (NASDAQ: AMZN) engages in the retail sale of consumer products in North America and internationally. It operates through the North America, International and Amazon Web Services (AWS) segments.
The company sells merchandise and content purchased for resale from vendors, as well as those offered by third-party sellers through retail websites. It also manufactures and sells electronic devices, including kindle e-readers, fire tablets, fire TVs and echo, as well as fire phones. It provides Kindle Direct Publishing, an online platform that allows independent authors and publishers to make their books available in the Kindle Store.
Amazon also serves developers and enterprises through the aforementioned Amazon Web Services, which provides compute, storage, database, analytics, applications and deployment services that enable virtually various businesses. AWS is the undisputed leader in the cloud now, and Jefferies sees the company expanding and moving up the enterprise information value chain and addressing a larger total addressable market. The company has had numerous recent product announcements, including Aurora for relational database engine, Quicksight for business intelligence and AWS Database Migration Support Service.
The company’s revenue exploded in the first quarter, and top analysts noted that after years of very uneven profitability, they feel the company is really focusing on the bottom line. Amazon absolutely annihilated analysts’ expectations on both its top and bottom lines for the first quarter, thanks mostly to its growing retail business and new cloud services.
The Jefferies price target for the stock is $865. The Thomson/First Call consensus target is $793.73. Shares closed Wednesday at $670.90.
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BroadSoft
This company reported solid earnings this week, but guidance for the second quarter was below estimates. BroadSoft Inc. (NASDAQ: BSFT) is the leading provider of software and services that enable mobile, fixed-line and cable service providers to offer unified communications over their Internet protocol networks. BroadSoft’s core communications platform enables the delivery of a range of enterprise and consumer calling, messaging and collaboration communication services, including private branch exchanges, video calling, text messaging and converged mobile and fixed-line services.
The company’s voice-over-internet-protocol (VoIP) services have been in-demand at the carriers and should be able to drive Verizon orders. The Jefferies analysts’ focus is on the migration for many consumers and businesses into IP telephony, and they see BroadSoft as one of the leasing beneficiaries. They noted that data from the Federal Communications Commission show that the transition to VoIP is accelerating, with more and more customers migrating to the technology.
The $48 Jefferies price target is well above the consensus target of $41.71. The stock closed Wednesday at $39.19.
Facebook
The huge social media leader has posted gigantic numbers that truly blew most of Wall Street away and traded to all-time highs. Facebook Inc. (NASDAQ: FB) has Instagram, which some analysts see revenues tripling in 2017 over 2016. Premium video and Graph Search capabilities help strengthen the social media giant’s earnings flow. Top analysts have noted in the past that Facebook and Instagram account for 5% of users’ total media time, but the company doesn’t come close to capturing 5% of total advertising budgets.
Most Wall Street analysts point to the fact that Facebook remains the top beneficiary of the adoption of mobile internet trends, with total U.S. internet time spent on Facebook and Messenger. Other metrics continue to explode, and the key is that no viable challengers are anywhere in sight. The social media juggernaut printed revenue and EBITDA that were 2% and 11% above consensus, and well above Wall Street expectations on Wednesday. The analysts admit they missed the call but are adding to positions here.
Analysts also remain bullish on Facebook Live, which was first rolled out only for iPhone users with verified accounts — a designation limited to journalists, celebrities and other public persons — but now anyone with an Android or iPhone can shoot live video from their phone, which can be viewed by Facebook users on any platform. To use it, you just go to the place where you would normally post a status update, but press the icon that shows a person inside a circle. This is yet another huge add-on for the social media market leader.
Jefferies raised its price objective to $160 from $145. The consensus target is $142.30, but that number is bound to go higher. The shares closed Wednesday at $118.06.
Infinera
Some feel this top company would be an outstanding addition to a networking giant as a takeover candidate. Infinera Corp. (NASDAQ: INFN) provides Intelligent Transport Networks, enabling carriers, cloud operators, governments and enterprises to scale network bandwidth, accelerate service innovation and simplify optical network operations. Infinera’s end-to-end packet-optical portfolio is designed for long-haul, subsea, data center interconnect and metro applications. Infinera’s unique large-scale photonic integrated circuits enable innovative optical networking solutions for the most demanding networks.
The analysts note that Alphabet’s recent announcement that it will be adding 12 new data center regions is a definite positive for Infinera. This is indeed a positive as the company posted lousy first-quarter results and the guidance for the second quarter was below expectations. The analysts do note that on the positive side, the Long Haul and Cloud Xpress units of the business seem to be performing very well.
The Jefferies price target was lowered to $18 from $22.50, and the consensus estimate is $18.50. Shares closed Wednesday at $12.14.
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Four solid tech stocks ideas from Jefferies: two that have blown away numbers and two that are solid companies that have some work to do. One thing is for sure, they are all in the right areas of the sector, and as the economy improves their businesses should as well.
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