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3 Tech Stocks Trading At A Discount To Analyst Estimates

Aditya Raghunath
·3 min read

The coronavirus has decimated companies across multiple sectors including airlines, energy, hospitality, and retail. At the same time, the pandemic has acted as a tailwind for tech companies, driving stocks in this sector to record highs.

The broader markets entered bear market territory in March and soon recovered to trade at pre-COVID-19 levels within a few months, primarily driven by the stellar performance of mega-cap tech companies.

This means there are stocks trading at a lower valuation that have the potential to outperform the broader markets as we enter the fourth quarter of the year. Let’s take a look at three tech stocks that are trading at a discount to sell-side price target estimates.

Digital Transformation Heavyweight Adobe: The first company on the list is Adobe Inc. (NASDAQ: ADBE), a stock that has already returned 45% in 2020.

Adobe continues to post stellar numbers and managed to grow sales by 14% year-over-year to $3.23 billion in the third quarter of fiscal 2020.

Its Creative Cloud business grew sales by 19%, while the Document Cloud and Experience Cloud businesses grew sales by 22% and 2%, respectively, on a year-over-year basis in the third quarter. 

The Creative Cloud vertical is part of Adobe’s Digital Media business, which includes flagship applications like Photoshop, InDesign, and Premiere.

Adobe prices its bundle of 20 applications at $53 per month, but users can subscribe to individual applications at a lower cost as well.

The Document Cloud vertical provides document storage and tools for PDF publishing and remote work. Adobe's Experience Cloud business provides marketing and advertising software to enterprises with which they can measure ad campaign results, purchase ad inventory, and engage with customers via email marketing campaigns.

Each of Adobe’s businesses has the potential to grow at a rapid pace in the upcoming decade.

Analysts polled by Yahoo Finance have a 12-month average target price of $552.77 — 9% above its current price.

Software Technology Company Akamai: Akamai Technologies (NASDAQ: AKAM) has a distributed intelligent edge platform from the enterprise to the cloud, enabling companies to deliver robust experiences and improve efficiencies.

Content-delivery networking companies including Akamai experienced a surge in internet traffic when lockdowns were announced in the second quarter of 2020. Akamai sales in the second quarter were up 13% year-over-year at $795 million, while the operating margin soared 32%.

During the company’s earnings call, Akamai said its intelligent edge platform has grown to include 300,000 servers in 4,000 locations, with over 1,500 network partners at the edge of the internet.

Akamai confirmed it is now working with over 220 of the world’s largest over-the-top and broadcasting companies as well as with 24 of the 25 most popular video game publishers.

Akamai stock is currently trading at $112.53, which is 10% below the average analyst price target estimate of $125.

Virtualization Technology Specialist Citrix: Shares of remote work enabler Citrix Systems Inc. (NASDAQ: CTXS) have gained over 20% year-to-date, despite trading 22% below their 52-week high.

The company provides desktop virtualization applications that have grown in demand due to the work-from-home trend.

In the second quarter, the company’s annual recurring revenue grew by a robust 54% year-over-year to $949 million, while ARR for subscription sales was up 41% at $590 million. Citrix is changing its business to become a software-as-a-service company, which should help generate stable revenue across business cycles.

This shift resulted in a 7% growth in the second quarter, which was significantly lower than the revenue growth of 20% in the March quarter.

The change in product mix is expected to be a temporary disruption, and revenue growth is expected to normalize in the next 12 months.

Analysts tracking Citrix have a 12-month average target price of $168 which is 17% above its current trading price.

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