Technology

Goldman Sachs Adds Red-Hot Networking Stock to Conviction Buy List

Lee Jackson

Published: March 22, 2019 7:30 am

Last Updated: January 30, 2020 11:03 pm

All the Wall Street firms that we follow here at 24/7 Wall St. keep a list for their institutional and retail clients of high-conviction stock picks. These are generally the companies they not only like on a longer-term basis, but those that usually have solid upside to the assigned target price. Since the beginning of the year, many Wall Street firms have tweaked their lists to account for potential changes in 2019, and one company has added some outstanding stocks we feel could have outsized upside.

In a recent research note, the analysts at Goldman Sachs made a big move by adding Arista Networks Inc. (NYSE: ANET), a top technology networking company, to the firm’s well-respected Americas Conviction Buy List of stocks. The analysts see this stock as an outstanding growth play for 2019

Arista Networks develops high-performance cloud networking solutions, including switches, an advanced software defined networking (SDN) operating system and SDN applications. The company’s low latency switches lower networking costs for high-frequency trading platforms, large internet companies and cloud service providers.

The company reported strong fourth-quarter revenues of $596 million, and earnings of $2.25 per share beat the consensus estimate solidly. In addition, first-quarter guidance also topped Wall Street expectations. While some of the company’s peers have reported slowing cloud spending, Arista is bucking the trend and expects strong cloud spending to continue in 2019. Mid- to long-term growth drivers include Campus switching, routing and 400-gig solutions.

The Goldman Sachs price target for the shares is $360, while the Wall Street consensus target is $298.54. The shares closed way above that level Thursday at $315.02, up a sharp 5.5% on the day.

Here are three additional technology stocks on the Conviction Buy list with the biggest upside to the Goldman Sachs price targets.

DXC Technology

This company may be somewhat off the radar for investors, but it is well liked across Wall Street. DXC Technology Co. (NYSE: DXC) is the world’s second-largest pure-play IT services firm, behind only Accenture, and it generated around $25 billion in annual revenues.

The company has more than 170,000 employees (with an offshore mix of around 50%), services around 6,000 clients in a wide range of verticals and has a presence in over 70 countries, with the Americas representing around 50% of total revenues.

Shareholders receive a 1.14% dividend. Goldman Sachs has a $106 price target, and the consensus target is $85.44. Shares closed trading on Thursday at $66.64, so hitting the Goldman Sachs target would be almost a 60% gain.

Citrix Systems

This company has come into the spotlight as a potential takeover candidate, and it gets 10% to 15% of revenue from government spending. Citrix Systems Inc. (NASDAQ: CTXS) is leading the transition to software-defining the workplace, uniting virtualization, mobility management, networking and software as a service (SaaS) solutions to enable new ways for businesses and people to work better.

Citrix solutions power business mobility through secure, mobile workspaces that provide people with instant access to apps, desktops, data and communications on any device, over any network and cloud. Strategic mergers and acquisitions and internal development have expanded Citrix’s addressable markets beyond access to legacy Windows applications to include desktop and server virtualization, team collaboration and application networking.

Investors receive a 1.38% dividend. The $130 Goldman Sachs price objective compares with the $112.52 consensus price target. Shares ended Thursday at $101.70. Hitting the target would be a gain of almost 30%.

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Netflix

This Wall Street darling and FANG constituent could offer solid upside. Netflix Inc. (NASDAQ: NFLX) is the world’s leading internet television network, with more than 120 million members in over 190 countries enjoying more than 125 million hours of TV shows and movies per day, including original series, documentaries and feature films. Members can watch as much as they want, anytime, anywhere, on nearly any internet-connected screen. Members can play, pause and resume watching, all without commercials or commitments.

Netflix is available on virtually any device with an internet connection, including personal computers, tablets, smartphones, smart TVs and game consoles, and it automatically provides the best possible streaming quality based on available bandwidth. Many titles, including Netflix original series and films, are available in high-definition with Dolby Digital Plus 5.1 surround sound and some in Ultra HD 4K. Advanced recommendation technologies with up to five user profiles help members discover entertainment they’ll love.

Goldman Sachs has set its price target at $450. The consensus target is $382.97, and shares closed most recently at $377.87. The Goldman Sachs target represents 20% upside.

One new member and three additional Conviction List stocks that all have solid upside to the posted targets. While much better suited for aggressive growth accounts, these are all leaders in their specific technology silos.