Jefferies Out With 4 Must-Own Sizzling Software Stocks

By Lee Jackson Updated Jan 30, 11:28PM EST · Published Mar 14, 7:15AM EDT

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Jefferies Out With 4 Must-Own Sizzling Software Stocks — © Justin Sullivan / Getty Images

Despite numerous concerns about the software sector, not the least of which is a lingering strong dollar, these companies continue to plow ahead, delivering solid earnings and providing solid earnings revisions. Also, while some of the top companies continue to trade at valuations that are somewhat elevated, they still look to be poised for further growth.

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In a new Jefferies research report, chief equity strategist Sean Darby and his team make the case for four companies that technology investors looking to add software positions should surely consider now. Their report said this in discussing the overall software sector:

It would be unfair and perhaps an investor’s curse to claim that software expenditure was ‘recession proof’ but the fact that its major customers are financial services, government offices and businesses lends itself to relatively resilient demand and upgrades. It would take a fairly deep recession to disrupt all three at the same time. Interestingly, the strong US profit rebound and reasonable expansion in EU government budgets provides a source of expenditure in fiscal year 2019 despite the higher base from US earnings.

Four of the stocks covered are likely “must-own” buys for investors with strong risk tolerance.

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Adobe Systems

This high-profile old-school software company and has posted outstanding earnings and will report again today after the close. Adobe Systems Inc. (NASDAQ: ADBE | ADBE Price Prediction) operates in three segments. The Digital Media segment provides tools and solutions that enable individuals, small and medium businesses, and enterprises to create, publish, promote and monetize their digital content. The other segments are Digital Marketing and Print and Publishing.

Top Wall Street analysts see the company benefiting from artificial intelligence, predictive analytics, automation bots, speech recognition and natural language processing and image recognition. Some on Wall Street see earnings per share increasing a solid 30% or more this year.

The Jefferies team feels the company deserves a premium multiple to its peers due to Adobe’s strong competitive position in the creative space and above-average growth prospects. The company posted solid results in December, but it still got caught up in the across-the-board fourth-quarter selling.

The Jefferies price target for the shares is $315, and the Wall Street consensus target is $289.79. The shares closed Wednesday’s trading at $264.38.

Intuit

This company has been on a roll this year and hits all the metrics in the technology sector for accounting needs. Intuit Inc. (NASDAQ: INTU) is a provider of business and financial management solutions for small and medium-sized businesses, financial institutions, consumers and accounting professionals.

Products and services include TurboTax, QuickBooks, Quicken, small business financial management and payroll processing, personal finance and tax preparation and filing and online banking services through its Digital Insight acquisition. Intuit also offers products on a software as a service (SaaS) platform across all its business divisions.

Intuit has served small businesses and accountants with QuickBooks for more than 20 years. The company was an early innovator in cloud accounting when it first launched QuickBooks Online in 2001. QuickBooks Online has more than a million paying subscribers, cementing its market leadership as small businesses shift to the cloud.

Over 40% of small businesses are using either Quickbooks Online or Quickbooks Desktops, while 35% are using Excel or manual paper accounting. This highlights the underlying opportunity for the company going forward.

Intuit investors are paid a 0.75% dividend. Jefferies has a $290 price target, while the consensus price objective is $289.79. The stock closed at $253.65 a share on Wednesday.
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Oracle

This top software stock had a very difficult 2018, and it also will report after the close on Thursday. Oracle Corp. (NYSE: ORCL) develops, manufactures, markets, sells, hosts and supports database and middleware software, application software, cloud infrastructure, hardware systems and related services worldwide.

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The company licenses its Oracle Database software to customers, which is designed to enable reliable and secure storage, retrieval and manipulation of various forms of data. Its Oracle Fusion Middleware software aims to build, deploy, secure, access and integrate business applications, as well as automate their business processes.

Oracle shareholders are paid a 1.44% dividend. The $61 Jefferies price objective is well above the $53.00 consensus price target. The stock closed most recently at $53.06 per share.

Salesforce

This top company reported solid fiscal 2018 results as billings drastically improved, and this past quarter was no exception. Salesforce.com Inc. (NYSE: CRM) provides enterprise cloud computing solutions, with a focus on customer relationship management to various businesses and industries worldwide.

It offers enterprise cloud computing applications and platform services, including Sales Cloud that enables companies to store data, monitor leads and progress, forecast opportunities, gain insights through relationship intelligence and collaborate around sales on desktop and mobile devices.

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The company also provides Service Cloud, which enables companies to deliver personalized customer service and support, as well as connect their service agents with customers on various devices; and Marketing Cloud, which enables companies to plan, personalize and optimize customer interactions.

The Jefferies team commented on the company’s recent earnings report:

Company reported last week and fourth quarter results were modestly better though first quarter revenue guidance came in below consensus, likely because we believe the company missed internal new business targets for the fourth quarter. We cut fiscal first quarter but raised fiscal 2020 and believe the company remains well positioned to fulfill long-term goals.

The Jefferies price target is $189. That compares to the posted consensus price objective of $181.32, as well as the $159.81 share price on Wednesday’s close.

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To be sure, shares of none of these top companies are cheap. With that caveat noted, they all look poised to continue strong revenue growth, and if the economy holds its own, the rest of the year should be solid. With some reporting after the markets close today, perhaps caution should be used on order size.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.