Salesforce and GlobalFoundries have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – June 29, 2023 – Zacks Equity Research shares Salesforce CRM as the Bull of the Day and GlobalFoundries Inc. GFS as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Matson, Inc. MATX, Investar Holding Corp. ISTR and Hamilton Lane Inc. HLNE.
Here is a synopsis of all five stocks.
Bull of the Day:
Salesforce stock has been one of the big winners during the first half of 2023, up nearly 60%.
Despite all the talk about large-cap tech being overvalued and overheated heading into July, Salesforce still trades 30% below its all-time highs. And CRM’s new commitment to profits, coupled with its growth outlook, has Salesforce stock trading at some extremely attractive valuation levels.
Salesforce’s expansive portfolio of subscription software offerings are also more essential than ever before across every aspect of the economy.
Price, Technical Levels & Valuation
Salesforce shares have soared nearly 60% YTD to outshine Amazon, Apple, and many other big tech stocks. Even after its impressive ride, CRM currently trades 10% below its average Zacks price target and roughly 32% under its 2021 peaks.
CRM has underperformed the wider Zacks Tech Sector over the last five years, up 55% vs. 85%, as Wall Street appeared to grow frustrated with its commitment to growth over the bottom line—but that is changing (as we will get to).
Salesforce has soared 450% in the last 10 years to blow away the Zacks Tech sector’s 260%, with it also up roughly 1,140% in the last 15 years to triple the tech sector and roughly match Microsoft. One of the nearby charts also showcases CRM’s massive run since its 2004 IPO year.
Salesforce has pulled back from the 52-week highs it hit at the end of May. The small drop pushed it below oversold RSI territory and right to neutral levels.
Plus, CRM stock recently found support at its 50-day moving average, while trading far above its 200-day. Technical-focused traders might also be glad to know that Salesforce is once again above both its 200-week and 50-week moving averages.
The downturn coupled with its improved earnings outlook has Salesforce trading at 35.7X forward 12-month earnings. This marks a massive discount to its own five-year highs of 206X and 70% value compared to its five-year median.
CRM’s PEG ratio, which factors in its growth outlook, currently comes in at its lowest levels since the financial crisis at 1.9. Salesforce’s PEG ratio also marks a discount to Zacks Tech sector and solid value vs. Microsoft’s 2.7, Apple’s 2.3, and its Computer-Software industry’s 2.6.
The Business and Its Profitability Pivot
Salesforce is one of the pioneers of modern business software and the wider customer relationship management and software-as-a-service industries. CRM’s current offerings support sales, marketing, commerce, customer and client engagement, analytics, app development, and beyond, servicing a wide spectrum of the economy.
Salesforce, like nearly every tech company, is pushing forward into the booming world of artificial intelligence. The company is currently working to infuse “trusted, secure generative AI across our entire product portfolio. Salesforce's generative AI ecosystem wields Einstein GPT, Slack GPT, and Tableau GPT, delivering trusted power across our product portfolio.”
Salesforce made a few large acquisitions over the last several years to expand its reach. These efforts include its $28 billion deal to buy Slack in the summer of 2021 to help CRM compete against Microsoft and others in the evolving work communication space. The deal came roughly two years after Salesforce paid $15 billion for data analytics platform Tableau.
These recent deals could mark the last in a long time for Salesforce as it focuses on the bottom line following a successful activist investor push. CEO Marc Benioff said on its Q4 FY23 (2022) earnings call on March 1 that the goal “is to make Salesforce the largest and most profitable software company in the world.”
Salesforce’s transformation plan includes short-term and long-term restructuring. Salesforce also said earlier this year that it disbanded its M&A committee. Salesforce is focused on a transformational FY24 that includes a beefed-up share repurchase plan from $10 billion to $20 billion.
Growth and Outlook
Salesforce posted between roughly 25% to 35% sales growth for 10 straight years through its fiscal 2022. CRM then grew its revenue by 18% in fiscal 2023 (last year).
Zacks estimates call for Salesforce’s revenue to climb by roughly 11% in both FY24 and FY25 to see it hit $38.47 billion. These are the kinds of stable low double-digit sales growth figures (mostly organic) that Wall Street will love as long as it is accompanied by solid bottom line expansion.
Salesforce’s adjusted earnings are projected to soar by 42% this year to hit $7.44 per share and then climb by about 21% next year to $8.99 a share. These growth projections follow 10% adjusted earnings growth last year. Plus, Salesforce has beaten our quarterly EPS estimates for five years running.
Bottom Line
Salesforce’s subscription software offerings aren’t going out of style in our digital-driven world. The tech giant’s new-found focus on margins and profitability should also start to attract long-term investors to again, as will its AI efforts.
Salesforce’s upbeat earnings outlook helps it land a Zacks Rank #1 (Strong Buy) as we close out June and look ahead to the potentially bullish second half.
Bear of the Day:
GlobalFoundries Inc. is one of the leading semiconductor foundries on the planet. But the stock has underperformed the chip market in 2023 and its earnings outlook is trending in the wrong direction.
The Basics
The U.S. is increasingly focused on onshoring more chip manufacturing, especially with the world’s largest foundry, Taiwan Semiconductor, possibly coming under pressure from the Chinese government at some point in the future. GlobalFoundries is a much smaller U.S.-based player in the vital chip manufacturing or foundry segment.
GlobalFoundries is poised to gain momentum and market share as those in power realize the U.S. must play a larger role in actual chip manufacturing. GFS, which builds chips in the U.S. and other countries outside of China and Taiwan, works across a wide spectrum of semiconductor categories.
GlobalFoundries is exposed to growth in mobile devices, data centers, IoT, automotive, and beyond. Originally an AMD spinoff, GlobalFoundries found early success after its October 2021 IPO.
The stock has bounced around since then, with GlobalFoundries down 1% since the middle of November 2021. Narrowing our view, GFS shares are up 17% YTD and 45% over the last 12 months, which lags its industry’s climb. The stock is also currently trading above both its 200-day and 50-day moving averages.
GlobalFoundries posted 23% revenue growth in 2022, but it faces near-term headwinds in the historically cyclical chip industry.
Zacks estimates call for the company’s adjusted earnings to slip 30% YoY to $2.18 per share on around 7% lower revenue. The nearby chart also shows that GlobalFoundries FY23 and FY24 consensus earnings estimates have faded recently, down 8% and 10%, respectively.
Bottom Line
GlobalFoundries lands a Zacks Rank #5 (Strong Sell) at the moment given its downward earnings revisions. GlobalFoundries also earns an “F” grade for Value and a “D” for Momentum in our Style Scores system right now.
Semiconductors are one of the backbones of the economy. GlobalFoundries could, therefore, be a solid longer-term play, but its earnings and revenue are projected to slide in 2023 and its earnings revisions have continued to trend in the wrong direction.
It might be best for investors to look beyond GlobalFoundries right now to some of the many other semiconductor stocks that are currently sitting at Zacks Rank #1 (Strong Buys) or #2 (Buys).
Additional content:
3 Stocks to Watch on Dividend Hikes as Inflation Prevails
The Fed decided to keep its interest rates unaltered for the first time in 15 months in its June FOMC meeting. The decision was cheered by investors that sent stocks on a rally. However, all three major indexes snapped their multiweek winning streaks last week as concerns of the economy slipping into a recession grew once again.
This saw the Dow ending 1.7% lower last week, while the S&P 500 and Nasdaq each finished 1.4% lower, snapping their five and eight straight weeks of gains.
Inflation has shown signs of easing, but the Fed has said that the crisis is far from over. Fed Chair Jerome Powell maintained his hawkish stance last week during his Congressional testimony. He said that two more rate hikes of 25 basis points each will be required by the end of this year.
The Fed has increased interest rates by 500 basis points since March 2022, with the terminal interest rate now at 5.6% instead of 5.125%. The Fed’s decision to continue with its interest rate hikes comes as inflation is still a lot elevated than its target level of 2%.
Understandably, market participants are concerned about the economy’s health and are trying to gauge the Fed’s next course of action. Given the Fed’s stance and the multi-year high inflation, it is unlikely that the first interest rate cut will be any time before 2025, although market participants believe it could also be some time in 2024.
Markets are thus likely to remain volatile for a longer period than expected, maybe throughout this year.
Stocks in Focus
Given this situation, investing in dividend-paying stocks would be a wise decision. Dividend stocks with a solid business plan and a proven track record are known for handling market volatility. An astute investor should thus consider stocks that have recently raised their dividend payments. Three such companies are Matson, Inc., Investar Holding Corp. and Hamilton Lane Inc.
Matson, Inc. operates as an ocean transportation and logistics company. MATX offers shipping services in Hawaii, Guam and Micronesia islands and expedited service from China to southern California. Matson sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
On Jun 22, Matson announced that its shareholders would receive a dividend of $0.32 a share on Jul 9, 2023. MATX has a dividend yield of 1.65%. Over the past five years, Matson has increased its dividend six times, and its payout ratio at present sits at 6% of earnings. Check Matson’s dividend history here.
Matson, Inc. dividend-yield-ttm | Matson, Inc. Quote
Investar Holding Corp. is a bank holding company for Investar Bank. ISTR offers a range of commercial and retail lending products throughout its market areas, including business loans to small to medium-sized businesses and professional concerns, as well as loans to individuals.
On Jun 21, Investar announced that its shareholders would receive a dividend of $0.10 a share on Jul 31, 2023. ISTR has a dividend yield of 3.25%. Over the past five years, Investar has increased its dividend 13 times, and its payout ratio at present sits at 15% of earnings. Check Investar’s dividend history here.
Investar Holding Corporation dividend-yield-ttm | Investar Holding Corporation Quote
Hamilton Lane Inc. is an investment management firm, which provides private market solutions. HLNE operates primarily in the United States, Europe, Asia, Latin America and the Middle East. Hamilton Lane is based in Bala Cynwyd, Pennsylvania.
On Jun 14, Hamilton Lane announced that its shareholders would receive a dividend of $0.45 a share on Jul 7, 2023. HLNE has a dividend yield of 2.34%. Over the past five years, Hamilton Lanehas increased its dividend five times, and its payout ratio at present sits at 48% of earnings. Check Hamilton Lane’s dividend history here.
Hamilton Lane Inc. dividend-yield-ttm | Hamilton Lane Inc. Quote
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