The tech sector has a reputation for taking all the oxygen in the markets – and for good reason. Tech stocks are the go-to thing in the today’s economy, where profitability is based on digital information. That’s just where the money is.
And the numbers show it, as far as they can. Just two of the biggest tech companies, Apple and Microsoft, brought in a whopping 15% of the total return on the S&P 500 last year. It was truly an impressive performance.
But for return-minded investors, the tech giants are not the only game in town. The small- to large-cap companies may not generate the buzz and the headlines, and their share of the broader market may not match the giants’, but Wall Street’s analysts say they are upward bound.
Harmonic, Inc. (HLIT)
The rise of the digital world has brought video content to the fore. From YouTube’s early days, to today’s ‘video on demand’ streaming sites, it’s clear that online content consumers want to see and hear more than just read. Harmonic inhabits the online video ecosystem, providing technology to develop and market video routing, server, and storage systems for producers and distributors.
HLIT shares saw a recent drop, losing 15% year-to-date, despite a solid final quarter in 2019. Q4 results were solid, beating the estimates on both earnings and revenue. EPS, at 12 cents, was 50% better than expected, while the $122.2 million in revenue was 8.1% over the forecasts. It is the fourth quarter in a row that HLIT has beaten expectations. Forward guidance, however, overshadowed the earnings beat. The company issued projected 2020 earnings of $390 to $430 million, well below the $438.8 million consensus.
Wall Street sees that pullback as creating a better entry point for the stock. Richard Valera, 5-star analyst with Needham, writes, “HLIT saw solid progress on the transition to SaaS/OTT in its video business, even as it issued below consensus revenue guidance for 2020. Net, with a solidified, if not enhanced, strategic position in the $1B+ CCAP/DAA market, and a conservatively set bar for 2020, we see HLIT shares as very attractive at current levels.”
Valera’s $10 price target implies a 50% upside for the stocks, and reinforces his Buy rating. (To watch Valera’s track record, click here)
Shares in Harmonic are selling for $6.67, and the average price target on the stock, $9.17, suggests room for 38.5% upside growth. The Strong Buy analyst consensus is based on 3 recent reviews, all Buys. (See Harmonic stock analysis at TipRanks)
Next up is the largest tech company on today’s list, with a market cap of $20 billion. InterActiveCorp is a holding company, owning media and internet brands in 100 countries worldwide. IAC’s brands include Match Group – the parent company of internet dating sites Tinder, OkCupid, and Match.com – as well as Vimeo, HomeAdvisor, and Investopedia. The company brings in well over $3 billion in annual revenues.
IAC has a history of frequently shaking up its brand line-up. Last month, the company shed the CollegeHumor websites, while earlier this month it closed a $500 million deal to acquire Care.com. The acquisition represents a new move for IAC, as the company’s first step into the family care market, a $300 billion market. In another move of similar import, IAC will be spinning off the Match Group brands later this year.
In the last four reported quarter, IAC has beaten the forecasts three times. The miss came in the most recent quarter, Q4 2019. The company reported EPS of $1.08, missing the estimates by 8.5%, based on revenue of $1.22 billion. While the total revenue missed expectations by just under 1%, it did represent an 11% gain year-over-year.
Weighing in on the stock for Nomura after the earnings came in, 4-star analyst Mark Kelley sees a clear path forward for IAC. He wrote, “Results in IAC’s stub businesses were mostly positive. Dotdash continues to generate strong results... Vimeo was led by 45% YoY growth in Enterprise offerings, which continues to be a clear focus... The emerging businesses and expansion into the home care market… will become all the more important following the Match spin, expected at the end of 2Q.”
Kelley puts a Buy rating on IAC, along with a $304 price target. His target indicates confidence – and a 32% upside to the stock. (To watch Kelley’s track record, click here)
IAC’s unanimous Strong Buy consensus rating is based on no fewer than 13 recent Buy-side reviews. The stock is currently priced at $230.97, and the $294.50 average price target suggests room for 28% growth to the upside. (See IAC’s stock analysis at TipRanks)
PROS Holdings (PRO)
We finish today’s list with PROS Holdings, a business computer software company. PROS offers cloud-based SaaS products for price optimization, revenue management, and sales effectiveness. The company is based in Houston, Texas, and has offices London, Paris, and Sydney. PROS made its start marketing revenue management systems to the airline industry; the company is expected to bring in $297 million for the current fiscal year.
To finish up 2019, PRO reported an earnings loss and revenue beat. EPS came in 37% worse than expected, at a net loss of 11 cents per share. Revenues, on the other hand, were up, as the company reported $66.18 million for the final quarter of the year. That was 3% above the forecast, and an impressive 26% year-over-year gain. Analysts expect Q1 2020 to show results similar to Q4.
PRO shares dropped on the earnings release, as the stock has slid 16% since the report went public. Investors were clearly concerned by the slip in earnings. RBC Capital Alex Zukin, however, sounds a different note, emphasizing the company’s strengths in his post-earnings review of the stock.
Zukin, a 5-star analyst, says up front, “PROS reported a record bookings quarter, its second of the year, and delivered revenue above expectations.” Regarding PRO’s forward prospects, he gets into greater detail, seeing three points to bolster optimism: “First, we think alignment with CRM/CPQ software means there is a clearer buyer for price optimization software. Second, we think a cloud delivery model helps… It also means the software can be consumed in smaller deals with faster time to value. Third, we think the digitization of B2B commerce likely increases the need for dynamic pricing across more companies and industries.”
Zukin’s Buy rating on the stock comes with a $75 price target, suggesting a robust upside here of 47%. (To watch Zukin’s track record, click here.)
All in all, PROS has 3 recent Buy ratings backing up its Strong Buy consensus. Shares are priced at $51.35, a bargain for such a high-potential stock. The average price target of $71.75 indicates room for 42% upside growth. (See PROS stock analysis at TipRanks)