Zscaler, Aspen, NVIDIA, Inphi and MACOM as Zacks Bull and Bear of the Day

For Immediate Release   

Chicago, IL – June 23, 2020 – Zacks Equity Research highlights Zscaler ZS as the Bull of the Day and Aspen Technology AZPN as the Bear of the Day. In addition, Zacks Equity Research provides analysis on NVIDIA NVDA, Inphi Corp. IPHI and MACOM Technology Solutions Holdings, Inc. MTSI.

Here is a synopsis of all five stocks:

Bull of the Day:                                              

Zscaleris a Zacks Rank #1 (Strong Buy) and it is the Bull of the Day today. I picked this stock in part because of the growth divergence that I always look for.  What growth divergence you might ask?  Well, when I see a strong Zacks Style Score for Growth (B for ZS) and a weak Zacks Style Score for Value (F for ZS) then I know I am on the right path.

Value investors and growth investors are inherently seeking different things so when the style scores are far apart, I know that growth investors will favor a stock like ZS.

Description

Zscaler Inc. operates as a cloud security company. It focuses on transforming networks and applications for a mobile and cloud-first. The company's flagship services consist of Zscaler Internet Access and Zscaler Private Access, engaged in securing connections between users and applications, regardless of device, location or network. Zscaler Inc. is headquartered in San Jose, California.

Earnings History

The Zacks Rank looks at the earnings history for all stocks, but it is not the most heavily weighted factor in determining what the final Rank is.

That said, ZS has a wonderful earnings history with 4 beats in the last four quarters.  These are also very big beats, with the average positive earnings surprise coming in at 312% over the last year.

Estimates

The Zacks Rank tends to focus on the earnings estimate revisions, and ZS has seen growth in estimates while many stocks have seen contractions.  COVID has put a hurt on many estimates but ZS continues to see estimates trend higher.

I see the 2020 fiscal year estimate coming in at $0.17 and that is two cents than where it was 60 days ago.

The estimate for next fiscal year is $0.24 and it too is two cents higher than where it was 60 days ago.

Valuation

Growth investors tend to pay up for stocks as they are generally already seeing multiple expansion.  I don't know how else to justify a 630x forward PE or a 42x price to book multiple.  That said, nearly 40% topline growth is not something that is very commonplace so a 36x price to sales multiple is almost justifiable.  I see margins moving the wrong way over the last three quarters so as that problem gets fixed the valuation multiples will probably become more reasonable.

Bear of the Day:

Aspen Technology is a Zacks Rank #5 (Strong Sell) and it is the Bear of the Day today.  Let's take a look at why this stock is the Bear, and if there is something the investors should still consider if they hold this stock or if they want to hold it.

Description

Aspen Technology, Inc., together with its subsidiaries, provides asset optimization solutions in the United States, Europe, the Asia Pacific, Canada, Latin America, and the Middle East. The company operates through two segments, Subscription and Software. It supplies asset optimization solutions that optimize asset design, operations, and maintenance lifecycle in various industrial environments.

The company software suites include aspenONE Engineering, aspenONE Manufacturing and Supply Chain, and aspenONE Asset Performance that are integrated applications, which allow end users to design process manufacturing environments, monitor operational performances, respond and adapt to operational changes, predict asset reliability and equipment failure, and manage planning and scheduling activities, as well as collaborate across these functions and activities. It also provides software maintenance and support, professional, and training services.

The company's customers are engaged in the process and other capital-intensive industries, such as energy, chemicals, engineering, and construction, as well as pharmaceuticals, transportation, power, metals and mining, pulp and paper, and consumer packaged goods. Aspen Technology, Inc. was founded in 1981 and is headquartered in Bedford, Massachusetts.

Earnings History

I see an OK earnings history with two beats and two misses over the last four quarters.  That alone is not enough to make a stock a Zacks Rank #5 (Strong Sell).

Estimate Revisions

The Zacks Rank is really all about the revisions of earnings estimates. After a miss, analysts are likely to take estimates for future quarters down as well.  This is just what happened to AZPN.

I see the estimate for this quarter went from $1.31 to $1.18 over the last 60 days.

The estimate for next quarter moved from $0.84 to $0.77 over the same time period.

The full-year numbers are also falling with the 2020 fiscal year sliding from $3.63 to $3.37 while next year saw a decline of 34 cents over the same time period.

Big moves lower in the full year earnings estimates are what pushed this stock to a Zacks Rank #5 (Strong Sell)

Valuation

When I see the topline contracting by 10% and a forward PE of about 30x, I tend to stay away.  I see the price to book multiple at 17.7x is also pretty rich as is the 11x price to sales multiple.

Margins have been coming in over the last 3 quarters so investors would be wise to continue to watch this stock to see if there is improvement in the margins.

Additional content:

3 Top-Ranked Semiconductor Stocks with Double-Digit Gains YTD

The global semiconductor industry, which plays a key role in the high-growth technology space, has been relatively less affected by the coronavirus pandemic.

With the reopening of the economy, rebound in smartphone sales in markets like China and people spending more time on mobile phones, the semiconductor industry is expected to benefit in the near term.

According to World Semiconductor Trade Statistics, annual global semiconductor sales are expected to grow 5.9% in 2020 and 6.3% in 2021.

Let’s dig deeper to understand what makes the semiconductor space fundamentally attractive.

Semiconductor Stocks Hold Promise

There has been a spurt in chip demand lately from PC manufacturers and data-center operators.

The growing demand for hardware that is facilitating the work-from-home setting is a key catalyst. There has also been an increase in the demand for cloud storage. Data-center operators have enhanced their capacities to accommodate the demand spike for cloud services. The companies that provide design and other components for chip making are expected to benefit from this trend.

Additionally, growing adoption of IoTs, smartphones, storage solutions, networking and connectivity solutions — including Wi-Fi as well as Wi-Fi/Bluetooth integrated SOCs — and the need for high-speed data in both communications networks and data centers bode well for industry participants.

Increase in demand for higher speed will result in accelerated deployment of 5G technology, which promises far more speed than the current 4G LTE due to low latency. Further, 5G adoption beyond mobile is likely to boost demand for memory and storage, particularly in IoT devices, wireless infrastructure and data centers.

These apart, blockchain, IoT, autonomous vehicles, AR/VR and wearables are other growth areas.

Stocks in Focus

Here we present three semiconductor stocks that are well poised to benefit from this space’s solid prospects. These stocks have witnessed a double-digit rally so far in 2020. Further, these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The chart below shows the price performance of the three stocks year to date.

NVIDIA is anticipated to keep benefiting from solid demand for graphics processing units (GPUs) in gaming desktops and notebooks. The company’s advanced graphics cards have become very popular lately, thanks to the strong rise in e-sports players and PC gamers, as well as more spending on gaming graphics processing units.

In addition, its Turing GPU and real-time ray tracing technology are witnessing increased adoption. The company’s strong presence in the datacenters market is a boon for the tech giant in the current scenario, as more businesses are shifting to cloud. This has led to a spike in the demand for GPUs, which bode well for NVIDIA.

The long-term projected EPS growth rate for this company is 16.9%. The stock has climbed 57.4% year to date.

Inphi Corp. operates as a provider of fabless high-speed analog semiconductor solutions for the communications and computing markets. The company has been gaining from a data center boom, transition to 5G and more. It is a leader in data movement interconnects between and inside data centers, and helps “move big data fast” around the globe.

The long-term projected EPS growth rate for this company is 37.7%. The stock has climbed 49.4% year to date.

MACOM Technology Solutions Holdings, Inc. is a developer of radio frequency (RF), microwave, and millimeter wave semiconductor devices and components. The shift to 5G will require rearranging base stations with massive multiple-in, multiple-out (or Massive MIMO) architecture. Each base station requires 5G-enabled RF antennas to provide better wireless performance without maxing out individual antenna power. Massive MIMO requires extra RF antennas that MACOM Technology manufactures, all the same, increasing its demand.

The Zacks Consensus Estimate for earnings for the current year has moved up 78.9% over the past 60 days. The stock has climbed 24.8% year to date.

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NVIDIA Corporation (NVDA) : Free Stock Analysis Report
 
Aspen Technology, Inc. (AZPN) : Free Stock Analysis Report
 
Inphi Corporation (IPHI) : Free Stock Analysis Report
 
MACOM Technology Solutions Holdings, Inc. (MTSI) : Free Stock Analysis Report
 
Zscaler, Inc. (ZS) : Free Stock Analysis Report
 
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