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Here's Why Investors Need to Watch for Pure Storage (PSTG)

·5 min read

Record Inflation, hawkish Fed policy, lingering supply chain issues and uncertainty prevailing over global macroeconomic conditions have raised investors’ apprehension.

Amid the ongoing volatility, Pure Storage PSTG is a stock that investors may consider adding to their portfolio to make some gains from its upside potential, especially after a strong quarterly performance.

The company currently has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company recently reported robust second-quarter results, registering non-GAAP earnings of 32 cents per share in second-quarter fiscal 2023 and beating the Zacks Consensus Estimate of 22 cents. In the prior-year quarter, the company reported 14 cents per share. Total revenues increased 30% from the year-ago quarter to $646.8 million. Moreover, the top line surpassed the Zacks Consensus Estimate by 1.6%.

The upside can be attributed to momentum in product and subscription services and revenue growth in the domestic and international segments. Subscription services’ revenues are benefitting from the robust adoption of Evergreen subscription services and synergies from the Portworx acquisition.

Pure Storage has been gaining from its growing clout of FlashArray, FlashArray//C, and FlashBlade, a cost-effective storage array solution. The solution provides customers with higher performance capabilities and enables them to run complex cloud workloads on a single platform.

A higher customer base (especially large enterprise clients) and strength in commercial business bodes well. In the last reported quarter, Pure Storage added more than 350 customers in the reported quarter. The company’s customer base includes 56% of Fortune 500 companies.

Raised Outlook

Driven by strong quarterly results, the company raised its outlook for fiscal 2023. For fiscal 2023, Pure Storage expects revenues of $2.75 billion, indicating year-over-year growth of 26%. Earlier, Pure Storage expected revenues of $2.66 billion, indicating year-over-year growth of 22%.

The non-GAAP operating income is expected to be $390 million and the non-GAAP operating margin is expected to be 14%. The non-GAAP operating income was expected to be $320 million and the non-GAAP operating margin to be 12%.

Northward Estimate Revision

The Zacks Consensus Estimate for fiscal 2023 earnings of $1.00 per share suggests growth of approximately 38.9% from the year-ago period’s levels. It has moved up 5.3% in the past 30 days.

For fiscal 2024, the consensus mark for earnings is pegged at $1.18, indicating a year-over-year increase of 18.5%. It has moved up 6.3% in the past 30 days.
For fiscal 2023 and 2024, the company’s revenues estimates are pegged at $2.73 billion and $3.14 billion, suggesting year-over-year growth of 25.4% and 15%, respectively.

Pure Storage has an impressive earnings surprise history. The company outpaced estimates in all the trailing four quarters, delivering an average earnings surprise of 171.8%. The stock has an impressive long-term earnings per share (EPS) growth expectation of 35.5%.

The stock has gained 10.1% in the past year against the industry’s decline of 24.5%. It is still trading 20.6% below its 52-week high of $36.71 on Mar 28, 2022, making it relatively affordable for investors.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Apart from having solid fundamentals, Pure Storage has the favorable combination of a Growth Score of A and a Zacks Rank #1. Per Zacks’ proprietary methodology, stocks with a combination of a Zacks Rank #1 (Strong Buy) or #2 and a Growth Score of A or B offer solid investment opportunities.

Other Stocks to Consider

Some better-ranked stocks from the broader technology space are Cadence Design Systems CDNS, Badger Meter BMI and Arista Networks ANET. Arista and Badger Meter sport a Zacks Rank #1, while Cadence carries a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for CDNS 2022 earnings is pegged at $4.11 per share, rising 5.7% in the past 60 days. The long-term earnings growth rate is anticipated to be 17.7%.

Cadence’s earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 9.8%. Shares of CDNS are up 1.5% in the past year.

The Zacks Consensus Estimate for BMI’s 2022 earnings is pegged at $2.30 per share, up 6% in the past 60 days.

Badger Meter’s earnings beat the Zacks Consensus Estimate in three of the preceding four quarters, with the average being 12.6%. Shares of BMI have lost 11% of their value in the past year.

The Zacks Consensus Estimate for Arista Network’s 2022 earnings is pegged at $4.04 per share, increasing 9.8% in the past 60 days. The long-term earnings growth rate is anticipated to be 18.6%.

Arista Network’s earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 10.1%. Shares of ANET have increased 29.2% in the past year.


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Badger Meter, Inc. (BMI) : Free Stock Analysis Report
 
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Pure Storage, Inc. (PSTG) : Free Stock Analysis Report
 
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