For Immediate Release
Chicago, IL – January 13, 2020 – Zacks Equity Research Shares of CrowdStrike CRWD as the Bull of the Day, FedEx FDX asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Microsoft MSFT, Amazon AMZN and Alphabet GOOGL.
Here is a synopsis of all five stocks:
Bull of the Day:
CrowdStrikeis the $11 billion cyber-security darling of 2019 that IPO'd around $60 last June, ran to $100 in August and then just built a base around $45-50 in Q4.
And that was part of the reason I pounced on shares under $50 on December 30 once the selling appeared to be over.
In fact, the sellers may regret what they just did last month. Here's what I told my TAZR Trader group in the recent Buy Alert...
TAZR Traders: Portfolio is buying CrowdStrike between $48 and $50.
CrowdStrike has a powerful AI/machine learning (ML) approach to 24/7 malware threats that can no longer be recognized with traditional "signature-based" metrics (past threat patterns)
CRWD became a Zacks #2 Rank after beating expectations and providing solid guidance in its Q3 report on Dec 5.
But the stock sold off afterwards, with particularly heavy volume on Dec 9 -- exactly 180 days after its IPO on June 12.
And that means it was IPO investors who were "locked-up" and just wanted out after missing their chance to sell at $100. Shares dropped from that peak during the Ukraine news.
The bad news is that just about any selling was justified in the second half based valuation alone as the stock still trades at 20X forward sales with a $10 billion market cap.
The good news is that the insider selling hardly put a dent in the potential turn that is setting up. In fact, shares couldn't even touch the Oct-Nov double bottom at $45 and there has been a good amount of volume this month showing willing buyers taking shares from shaky insider hands.
Now that they are out of the way, let's see what the growth and upside are for CRWD.
(end of excerpt from TAZR Buy Alert on Jan 30)
I went on in that report to describe the analysts who were turning bullish again, despite the valuation.
Silencing the Haters
Stifel Nicolaus raised their price target on CRWD shares to $90 after going over the company's Q3 beats in core SaaS metrics...
**ARR increased 97.4% y/y to $501.7 million vs. $465.2M Stifel estimate
**Total revenue increased 88.5% y/y to $125.1M vs. $119M Stifel estimate
**Subscription revenue increased 98.1% y/y to $114.2M vs. $108.5M Stifel estimate
Stifel analyst Gur Talpaz said CrowdStrike delivered "another clean beat" in Q3 across all major financial metrics and he believes the company's report "has put to bed unsubstantiated fears surrounding heightened competitive pressures and various conspiracy theories."
In a note titled "Mic Drop: CrowdStrike Silences the Haters," Talpaz added that he believes CrowdStrike's cloud-centric approach to endpoint and device security is increasingly resonating with customers and he continues to see the company having "a significant cloud-defined moat that other vendors are ill-equipped to compete against."
Guidance Raised Ahead of Another Big Growth Year
CrowdStrike management also raised guidance for their Q4 FY20 (ends in January) with total revenue in the range of $135.9-138.6 million vs. prior consensus $127.2M.
This caused analysts not only to raise this year's EPS estimates but FY 2021 (begins February) jumped from a loss of 40-cents to a loss of just 21-cents.
The topline is expected to grow a healthy 42% from $467 million to $664 million in the new year.
Oppenheimer titled their post-earnings note: Solid F3Q20 Execution Supported by Record Net New Customer & ARR; Positive Cash Flow In Sight for FY21. They have a $100 PT on CRWD shares.
Mizuho analyst Gregg Moskowitz wrote that CrowdStrike Holdings reported another "spectacular quarter." Despite a high fundamental bar heading into the print, the company surpassed expectations as total annual recurring revenue growth of 97% year-over-year easily beat the Street's 85% estimate. The analyst continues to believe the stock will likely show a strong rebound over the next several months. He keeps a Buy rating on CrowdStrike with a $77 price target.
And on Dec 30, the day I first bought CRWD shares under $50, came this analyst move...
Needham Adds CRWD to Conviction List
Needham analyst Alex Henderson kept his Buy rating and $92 price target on Crowdstrike, and added the stock to the Needham Conviction List in favor ofZscaler, calling it his "Single Best Idea in Security" heading into 2020. The analyst said the company's "technology, platform and efficacy" combine to create "one of the core platforms in Security" regardless of its customer strategy. Henderson added that CrowdStrike offers the "right technology" to improve security for either legacy perimeter defense or for "emerging, zero-trust" cloud-direct security.
Customers from Goldman to Mercedes to US.Gov
Last week I wrote a longer piece on CRWD and my increasing conviction in the company's solutions and sales potential after (1) learning more about their customers and (2) understanding their use of AI and machine learning (ML) to tackle persistent malware attacks, especially from skilled adversaries from Iran...
In that short video and detailed article, I describe the security threats to banks, infrastructure, and technology networks that will only grow this decade, requiring 24/7 cyber "learning machines."
The Mercedes-AMG Petronas Formula 1 team did a video presentation with the company because their car engineers and technicians rely on CrowdStrike to protect the data streaming from thousands of sensors every time they test something.
Obviously, this group was willing to do a commercial for CrowdStrike. Hundreds of other companies probably don't want to talk about these data risks.
But just think about how many corps have similar voluminous proprietary data streaming in thousands of IoT channels that they need protected?
CrowdStrike Falcon on GovCloud
Another impressive customer win was at Goldman Sachs, where CISO (chief info security officer) Andy Ozment previously worked in senior-level US government roles for over 6 years. Obviously, the dude knows his stuff.
The most critical vulnerability we all share is a cyber-attack on government and utility services like happened in Atlanta in 2018.
Not surprisingly, Crowdstrike is already working closely with US agencies as Falcon on GovCloud provides the industry’s first cloud-delivered endpoint security and IT hygiene solution. Each component is tailored for securing the U.S. public sector, and is FedRAMP authorized and delivered from AWS GovCloud.
This is probably why CrowdStrike was such a natural choice for Ozment and Goldman.
Falcon on GovCloud enables customers to prevent all types of modern attacks and significantly reduces the cost of operating security infrastructure.
These things were on my mind last week after the US strike on Iran's top military general Qasem Soleimani. And it propelled me on Friday January 3 to issue this trade alert...
TAZR Traders: Portfolio is adding to CrowdStrike under $51.
Looking for the massive call buying action in CRWD that I noted earlier this morning, I came across two other data points...
1) Nomura predicts that CrowdStrike is poised for "another year of hyper-growth." The comment came in Nomura's note previewing the year and the firm's best ideas. The firm maintains a Buy rating and $71 target on CrowdStrike.
2) As we evaluate what Iran is capable of and likely to do, I was reminded of the 2018 utility "ransomware" cyber-attack on Atlanta that was executed by two Iranian hackers. (story excerpt below from Wikipedia)
These might explain the bullish action in Jan, Feb, and March call options.
(end of Jan 3 TAZR Buy Alert)
Ransomware is Not New
According to CrowdStrike, an exponential growth curve of malware has made it a pervasive and persistent threat to end users. Most virus protection software can't catch half of it now.
What I love about the CrowdStrike approach to using AI and ML to seek and destroy cyber threats is that it's about "going where the ball will be."
In other words, the most sophisticated cyber threats of this decade won't be designed by humans. They will be machine-made.
So why not get ready for full-scale cyber war with the only tools that can win -- better machine programs that are constantly learning.
Besides that, even if CRWD is not the winner of this war, you and I will be because we'll be studying the most urgent application of ML and AI: national security.
Malware Meets Machine Learning
On Monday January 6, I gave my TAZR members this report...
Short Game in CRWD Getting Crowded
The investing crowd came for CRWD today and 4 more events made them chase the shares +9% on massive volume of over 21 million shares!
1. CrowdStrike CEO on Cramer's show Friday evening
2. Actual pro-Iranian hack of a US government website on Saturday (as I suggested was likely)
3. VMWare's head of cyber-security interviewed Friday evening on Bloomberg on his knowledge of the "footprints" and "lateral" threats now possible from Iran
4. Bloomberg published a story about the Iranian hack of Sheldon Adelson's Las Vegas Sands casino in 2014
All of this combined for a massive bonfire of short positions as new longs deployed fresh capital.
CRWD shorts had already been covering in December, leaving the shares short at just 6.5 million. So that's how we know there was even more fresh money pouring in to the stock.
In the article vlog linked above, I go over each bullet in more detail. I also evaluate the current odds of a major vs. minor cyber attack by Iran and share some of the 2020 CyberWar outlook from the analysts at SunTrust.
CrowdStrike seems pretty confident that their model of "cloud native" and data-centric solutions is a breakthrough in cyber security on par with Salesforce's CRM Cloud and Workday's HR Cloud.
If that claim of upper-tier industry domination is even half true, the stock has higher to go in 2020 and beyond.
Disclosure: I own CRWD shares for the Zacks TAZR Trader portfolio.
Bear of the Day:
FedExdid it again. For the second consecutive quarter, the shipping and logistics pioneer delivered another disappointing quarter and outlook.
On December 17, the company reported a 10% EPS miss for Q2 fiscal 2020 (ended Nov) on account of a weaker global economy due to escalating trade tensions, higher costs at the Ground unit and loss of business with Amazon.
Simultaneously, the company slashed its fiscal 2020 adjusted earnings outlook on expectations of lower revenues at each of the transportation segments and increased costs due to expansion of 7-day delivery service at the Ground unit.
Since then, analyst have taken estimates down yet again. The EPS consensus for the current fiscal year ending in May has dropped 10.2% from $12.07 to $10.84. And FY '21 (starts in June) fell nearly 9% from $13.63 to $12.42.
What’s Going on with FedEx? -- Part 2
FedEx Chief Executive Fred Smith gave analysts a surprisingly sober view of his business during the earnings conference call that day.
"When you have a change that comes on you as fast as this did, it's hard to react to it. Our international business, especially in Europe, weakened significantly since we last talked with you."
"Most of the issues that we are dealing with today are induced by bad political choices. I mean, making a bad decision about a new tax, creating a tremendously difficult situation with Brexit, the immigration crisis in Germany, the mercantilism and state-owned enterprise initiatives in China, the tariffs that the United States put in unilaterally. So you just go down the list, and they're all things that have created macroeconomic slowdown."
Most analysts were caught off-guard. Morgan Stanley analyst Ravi Shanker summed up the reaction of many when he wrote later "We recognize that global growth has slowed but we are very surprised by the magnitude of the headwind, which is what might be seen in a severe recession."
My colleague Ben Rains wrote about FedEX as the Bear of the Day in late October after a similar report and outlook...
What’s Going on with FedEx? -- Part 1
FedEx shocked many on Wall Street when the firm in August essentially ended its relationship with Amazon. Some might contend that the global shipping powerhouse pulled the cord too early, even though company management noted that “Amazon contracts represented only a small proportion” of its revenues.
CEO Frederick Smith said on FedEx’s Q1 fiscal 2020 earnings call that his company’s decision not to renew its Amazon contract will hurt near-term profits. However, he went on to note that the company has started to land and onboard deals to help replace the lost traffic, while also removing “significant costs which were unique to Amazon's requirements.”
It seems that the Memphis, Tennessee-based firm didn’t want to be in business with a company that aims to take over the global shipping and logistics market. And FedEx hopes to do what Microsoft has done with cloud computing: attract Amazon’s direct rivals, including companies like Walmart.
FDX aims to improve its FedEx Express hub automation, modernize its FedEx Express air fleet, and much more going forward. Management also outlined how it plans to enhance its offerings to attract more e-commerce customers and business to consumer clients, while remaining a B2B-heavy operation. “To lead in e-commerce, we have launched or announced FedEx Extra Hours, an express service, which provides nightly pickup with delivery the next business day,” Smith went on to say on FDX’s earnings call.
FedEx has more plans to help improve and bolster its e-commerce business as it aims to better compete against its core competitors. Company management noted that FedEx competes against four other firms: United Parcel Service, DHL, the US Postal Service, and more recently Amazon.
Along with investors’ Amazon-related questions, FedEx continued to point to broader economic worries. Last quarter, the company significantly cut its fiscal 2020 profit forecast and noted that its “performance continues to be negatively impacted by a weakening global macro environment driven by increasing trade tensions and policy uncertainty.”
Canary in the Global Economy?
It's wise to be concerned about the trade war and global slowdown impacts on FedEx. Given the consistent shipping volumes that flow through their network, if they slowdown, the whole world economy may be headed that way.
Right now, we've seen this show up in the manufacturing PMI and ISM data. But the rest of the US economy appears robust.
Until we have more data to know which way the momentum is going, it's probably best to just watch FedEx as a business and avoid the shares.
One thing for sure that will give you a clue is the Zacks Rank as it rises and signals rising estimates again.
Microsoft’s Azure Poised to Pop
Wedbush analyst Daniel Ives put out a positive note on Microsoft’s cloud business, which isn’t as easy to follow as Amazon’s AWS because Microsoft doesn’t break out all aspects of its cloud business.
So the comparison we actually read about in most cases is the infrastructure (IaaS) business, which still trails Amazon. But Microsoft also offers PaaS, which makes its cloud offerings more robust and attractive to new adopters. That’s probably why the analyst thinks it is firing “on all cylinders around Office 365 and its Azure strategic vision.” It also makes the business bigger than AWS.
What’s more, the December edition of the Goldman Sachs bi-annual survey of 100 technology executives at Global 2000 companies shows that 56 are using Azure IaaS versus 48 for AWS, which seems to indicate that Microsoft is narrowing the gap in this segment as well.
Goldman Sachs analysts estimate that 23% of IT workloads are already on public clouds, a jump from 19% in June. They expect that number to go to 43% over the next three years, which means huge growth potential not only for Amazon and Microsoft but also for the distant third, Alphabet.
Microsoft has always had an edge at enterprise customers because of its being the incumbent player whose offerings most enterprises are already using. Migration or the hybrid approach that they largely prefer is easier when you’re using the same vendor.
Ives is saying that the business has now reached a tipping point where the trend of Amazon winning more of the orders is going to change. “Enterprise customers and partners we have spoken to over the past few weeks indicate a clear acceleration of larger and more strategic enterprise cloud deals as Redmond is poised to win the majority of the next phase of cloud deployments versus the likes of Amazon and Bezos,” he says.
And best of all is the JEDI win according to Ives because of the “ripple effect” that “will be felt for years to come on both the government and enterprise fronts and thus indicates a seminal moment in the cloud battle between these two stalwarts.”
Overall, he thinks that “clearly Amazon won the first phase of cloud spending, but this next phase of cloud will be dominated by Redmond as it gains share and significantly narrows the gap over the coming years.”
The cloud business does indeed seem to be the thing driving share prices, which are up 57%+ over the past year. But this is also why the shares are overvalued with respect to the S&P 500 on every consideration except cash flow. That’s why we have a Zacks Rank #3 (Hold) on the shares.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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