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Bull of the Day: Box (BOX)

Kevin Cook

Box (BOX) is a $3 billion provider of a cloud content management platform. The platform enables internal and external collaboration on content, automation of content-driven business processes, development of custom applications, data protection, security and compliance features.

 

While BOX was already expected to zoom to profitability this year, the "remote economy" imperative ignited by the COVID-19 pandemic is bringing that future faster.

 

On May 27, Box reported Q1 FY21 earnings per share of 10 cents, which surpassed the Zacks Consensus Estimate by 100%. The company had recorded a loss of $0.03 per share a year ago.

 

Total revenues came in at $183.56 million, surpassing the consensus mark by 0.3%. The top line increased 12.6% year over year and was within the guided range of $183-$184 million.

 

The global shift to work from home due to the coronavirus crisis increased the demand for Box’s online collaboration tools.

 

Also, strong demand for its add-on products and high volume of large enterprise deals aided revenue growth during the quarter.

 

Box is currently working on enriching cloud content management and AI platforms. During the quarter, it made some notable partnerships and deeper integrations with leading organizations such as BETC, City of Berkeley FLIR, NASA, National Bank of Canada, Toyota Finance Corporation, and many more.

 

The company’s rich technology partner ecosystem will continue to be a strong driving force behind growth.

 

Analysts Raise Price Targets to Mid-$20s

 

Following these strong results and outlook, Wall Street analysts grew more positive on the future of BOX.

 

Wells Fargo analyst Philip Winslow raised the firm's price target on Box to $25 from $20 with an Overweight rating on the shares. The analyst notes that Box reported Q1 revenue, margins, EPS, and billings above consensus expectations.

 

Raymond James analyst Brian Peterson raised their PT to $24 from $18 following the better than expected Q1 print, with positive developments on both growth/cash flow prospects. While it's still early in the new business trajectory in a COVID-19 environment, Peterson says Box could be set up for stronger top-line tailwinds with a clear path for margin expansion.

 

Craig-Hallum analyst Chad Bennett upgraded Box to Buy from Hold with a price target of $24, up from $18. Bennett remarked that the abrupt shift to remote work allowed BOX to deliver Q1 results ahead of estimates with revenue growing 12.6% year-over-year, versus 12.1% year-over-year last quarter. Q2 guidance was also solid with revenue in-line with Bennett's prior estimate and EPS materially higher. With 95% recurring revenue, upwards of 70% of bookings coming from existing customers, and minimal SMB exposure, the analyst feels Box is well postured for this environment.

 

Oppenheimer analyst Ittai Kidron raised their PT to $22 from $16, describing "another solid quarter" with revenue, billings, and EPS exceeding consensus reflecting triage spending by U.S. enterprises supporting WFH, rising demand for new products, and solid uptake of Enterprise Suite bundling packages. He expects WFH-related expansion activity to slow down, but sees strategic discussions around workflow automation stepping up strongly positioning the company.

 

Quarter Financial Highlights

 

Billings were $128.1 million, up 8% year over year. Deferred revenues were $368.3 million, up 11% from the year-ago quarter.

 

On a non-GAAP basis, the company recorded operating income of $17.2 million versus operating loss of $3 million a year ago. Operating margin was 9% versus 2% in the year-ago quarter.

 

Box’s operating expenses (general & administrative, sales & marketing, as well as research & development) of $153.8 million increased 2.8% year over year.

 

At the end of the quarter, cash and cash equivalents, and accounts receivables balance were $268 million and $99.1 million compared with $195.6 million and $209.4 million, respectively, at fiscal fourth quarter-end.

 

Net cash provided by operations was $61.9 million and free cash flow was $39.8 million in the fiscal first quarter.

 

Guidance

 

For the second quarter of fiscal 2021, Box expects revenues between $189 million and $190 million. The Zacks Consensus Estimate for the same is pegged at $187.5 million. On a non-GAAP basis, the company projects earnings per share within 12-14 cents. The corresponding Zacks Consensus Estimate is pegged at 8 cents per share. GAAP loss per share is expected within 13-11 cents.

 

For fiscal 2021, Box’s revenue guidance is expected within $760-$768 million. The Zacks Consensus Estimate for the metric is pegged at $758.36 million. On a non-GAAP basis, it projects earnings per share in the range of 47-52 cents. The consensus mark for the same is pegged at 37 cents per share. GAAP loss per share is expected in the range of 55-50 cents.

 

Bottom line for BOX: Trading under 4X sales that are growing over 10% and building a rapid rise to profitability, BOX will be a cloud platform provider on the radar of many larger enterprises, both as a vendor and a potential acquisition target. Dips should be bought under a $3 billion market cap.

 

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