The picture so far this earnings season appears encouraging, as resonated by the latest Earnings Preview as well.
Software Stocks Continue to Outperform
We note that the software industry has had a robust past year. Software has become the focal point of technological innovation. Proliferation of cloud computing, predictive analysis, artificial intelligence (AI) and tools like machine learning, digital personal assistants and Internet of Things (IoT) are working in the favor of the software industry.
Moreover, a continued enterprise investment in Big Data and analytics, and the ongoing adoption of Software-as-a-Service (SaaS) presents a significant growth opportunity.
Further, application and infrastructure monitoring have gained immense significance as enterprises continue to transfer their on-premise workload to cloud environments (emergence of hybrid cloud).
Per Gartner, global IT expenditure is projected to grow 3.2% in 2019 to $3.8 trillion, driven by enterprise software, cloud and digital transformation efforts. Further, fueled by SaaS, enterprise software spending is likely to record growth of 8.3% in 2019, according to Gartner.
Furthermore, an increasing focus on providing a better customer experience is bolstering growth of customer relationship management (“CRM”) software. Per Gartner, cloud software is likely to witness growth of more than 22% this year compared with the 6% rise for all other Software forms.
Additionally, demand for cyber security software has been on the rise backed by the growing need to secure cloud platforms amid rampant incidents of cyber-attacks and hacking drives. Further, enterprises are aiming at rapid migration to cloud and DevOps technologies for achieving scalability and agility in favor of software development and IT operations, which ultimately help delivering a flawless digital experience to clients.
Notably, software providers are adjusting their business model to keep up with changing requirements of clients. Subscription and term-license based revenue pricing models have become extremely popular and these are replacing the legacy upfront payment model.
However, this does not ensure earnings beat for all companies in the space. It should be noted that a company’s earnings outperformance is dependent on the overall business environment as well as management’s ability to implement operating and strategic plans.
In other words, a company may perform dismally despite a favorable business environment if it fails to capitalize on the opportunities owing to lack of execution.
Let’s see what’s in store for the following software stocks, all of which are slated to release quarterly figures on Jan 23.
Citrix Systems Inc. CTXS is scheduled to report fourth-quarter 2018 results. The Zacks Consensus Estimate for earnings is pegged at $1.59 per share while the same for revenues stands at $790.3 Million. The estimates, compared with the year-ago quarter figures, reflect a decline 4.2% in earnings and an increase of 1.6% in revenues. The stock carries a Zacks Rank #3 (Hold).
The company has beaten the Zacks Consensus Estimate in the trailing four quarters, recording average positive surprise of 11.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Citrix Systems, Inc. Price and EPS Surprise
Citrix Systems, Inc. Price and EPS Surprise | Citrix Systems, Inc. Quote
Citrix Systems is a provider of virtualization, networking and cloud computing solutions. The company is benefiting from robust adoption of its Subscription based services. Solid adoption of unified workspace solutions and hybrid cloud offerings is a key catalyst.
Acquisition of Sapho will enable the company to fortify its competitive position in the rapidly growing desktop virtualization market. Buyout of Cedexis is likely to improve its operational performance.
We believe the synergies from buyouts, strategic alliances and focus on adding innovative features to its subscription offerings are likely to act as tailwinds. (Read more: Factors Expected to Impact Citrix Systems' Q4 Earnings)
F5 Networks Inc. FFIV is set to report first-quarter 2019 results. The stock has a Zacks Rank #3. The Zacks Consensus Estimate for the to-be-reported quarter is pegged at $2.54 per share, representing year-over-year growth of 12.4%. Additionally, the Zacks Consensus Estimate for revenues is pegged at roughly $546.6 million, up 4.5% from the year-ago quarter.
F5 Networks, Inc. Price and EPS Surprise
F5 Networks, Inc. Price and EPS Surprise | F5 Networks, Inc. Quote
F5 Networks’ growth in services and software solutions segment is a key driver. Additionally, the BIG-IP Cloud Edition has been gaining traction among customers since its launch last year. This trend is expected to continue in the fiscal first quarter and in turn drive revenues.
Further, the company’s growth opportunities in the security market are driven by its advanced Web Application Firewall (“WAF”). The robust adoption of advanced WAF in existing and new customers is expected to continue in the to-be-reported quarter.
However, increasing competition from the likes of Cisco Systems remain headwinds for F5 Networks’ revenue growth. (Read more: Can Software & Services Boost F5 Networks Q1 Earnings?)
PTC Inc. PTC is scheduled to report first-quarter 2019 results. The Zacks Consensus Estimate for the company’s revenues and earnings is pegged at $324.7million and 41 cents per share, indicating year-over-year growth of 5.9% and 32.3%, respectively. The stock carries a Zacks Rank #3.
PTC Inc. Price and EPS Surprise
PTC Inc. Price and EPS Surprise | PTC Inc. Quote
PTC is benefiting from its partnership with Rockwell Automation and Microsoft. The company also launched KEPServerEX Version 6.6 industrial connectivity platform that helps manufacturers accelerate their digital transformation initiatives. Notably, PTC’s ThingWorx continues to gain rapid adoption.
Moreover, PTC’ds Frustum acquisition is expected to strengthen PTC’s Creo portfolio offerings. Further, increasing recurring software revenue base is a positive. The transition to subscription business model from a perpetual license model is expected to drive recurring revenue growth further. (Read more: PTC Q1 Earnings Likely to Benefit from CAD & IoT Bookings)
Aspen Technology, Inc. AZPN is scheduled to report second-quarter 2019 results. The Zacks Consensus Estimate for the company’s revenues and earnings is pegged at $120.4 million and 66 cents per share, respectively, reflecting a decline of 3.6% for revenues and an increase of 11.9% for earnings on a year-over-year basis. The stock carries a Zacks Rank #2 (Buy).
Aspen Technology, Inc. Price and EPS Surprise
Aspen Technology, Inc. Price and EPS Surprise | Aspen Technology, Inc. Quote
Aspen Technology has been securing notable customer wins on the back of its strength in asset optimization and management solutions. The company is also witnessing increased demand from E&C customers and Latin America customers.
The company also witnessed pipeline expansion, which is a positive. Further, Aspen Technology witnessed an increase in E&C customers due to lower attrition of customers on account of renewal. Further, management remains elated on the growing clout of Mtell offering which is reinforcing the company’s presence globally. (Read more: Aspen Technology Q2 Earnings: What's in the Cards?)
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Aspen Technology, Inc. (AZPN) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research