There’s no doubt that Wall Street didn’t like Fed Chairman Jerome Powell’s Jackson Hole speech. Markets tumbled after Powell stressed the central bank was committed to taming inflation and would make another 75 basis point hike if that’s what it takes to get the job done.
Markets may have thrown the toys out of the wheelbarrow, but while aware of a bearish scenario, Goldman Sachs chief economist Jan Hatzius isn’t overly concerned, preferring to focus on Powell’s less hawkish commentary.
“We continue to expect the FOMC to slow down from here, providing a 50bp hike in September and 25bp in November and December, for a final rate of 3.25-3.5%.” However, further CPI and employment reports will be available by the September meeting, and Powell stressed that the decision would “depend on the aggregate of incoming data and the evolving outlook,” the economist explained. “We see the risks to both the near-term rate and our terminal rate forecast as tilted to the upside.”
An upside is certainly on the menu for a pair of stocks that Goldman Sachs is bullish on right now – the firm’s analyst Kash Rangan has named two names that he believes have at least 100% upside on the menu for the coming months. We have used TipRanks platform to find out how other Wall Street experts think next year will play out for these stocks.
The first Goldman pick we’ll look at is Splunk, a big data analytics company. Splunk provides businesses with tools to gain insight from massive data sets. Data can be used to inform business decisions and help operations run smoothly. The company is a recognized leader in IT operations and security, has an installed base of more than 20,000 customers, and boasts differentiated technologies and a strong track record in innovation.
All of that may be true, but Splunk is not immune to the economic downturn, as was evident when the company recently reported its FQ2 (July quarter) earnings.
That’s not to say the report itself was rubbish. The company’s revenue rose 32% year over year to $798.75 million, beating analysts’ expectations of $747.7 million. EPS of $0.09 also fared much better than the $0.35 loss per share Wall Street had predicted.
However, the stock took a hit in the post-earnings session due to the company’s disappointing outlook. Annual recurring revenue (ARR) — a key metric in the software space — is now expected to reach $3.65 billion this year, down from a previous forecast of $3.9 billion. Further dampening the mood is that the company now sees this year’s annual recurring cloud revenue reaching $1.8 billion, also below its previous outlook of $2 billion.
Investors were quick to show their frustration, which Goldman’s Kash Rangan believes is “valid.” However, the lowered outlook does not change the long-term thesis in any way.
“We are bullish on Splunk’s rapidly scaling cloud business, significant perpetual license and non-cloud ARR renewal opportunity, long-term fundamentals and enhanced value proposition post-COVID. Additionally, Splunk is an attractive asset with a unique and strategic value proposition,” Rangan said
“We remain positive on the long-term as the company successfully manages the transition to the cloud under the leadership of the new CEO.” Also, an approach to the Rule of 40 (revenue growth + free cash flow margin) in FY23 could push the stock into higher valuation territory,” Rangan added.
These comments underpin Rangan’s Buy rating, while his $200 price target makes room for year-to-date gains of a hefty 114%. (To watch Rangan’s record, Press here)
Splunk Gets Big Wall Street Coverage; in the past 3 months, there have been 27 analyst reviews tilting 18 to 9 in favor of buy over hold, all leading to a consensus rating of moderate buy. Holding a price target of $131.79, the stock is expected to post ~41% upside in the coming months. (See the Splunk stock forecast at TipRanks)
In the cloud-based customer relationship management software industry, Salesforce is a market leader, building and developing its products for enterprises. Its product portfolio spans sales, marketing, analytics, artificial intelligence, e-commerce, client applications, integration and collaboration. In fact, it practically covers all aspects of the ongoing trend of digital transformation. According to the company, the TAM (total addressable market) for its combined businesses should reach $284 billion by FY26.
As is customary, Salesforce delivered another strong set of results in its recently released second quarter fiscal 2023 (July quarter) report.
Revenue came in at $7.72 billion, a 22% improvement over the same period last year, while beating the consensus estimate of $7.69 billion. The company also exceeded expectations for the bottom line, as adj. EPS of $1.19 came in ahead of the Street’s call for $1.02 per share.
However, despite strong headline readings, the report failed to please investors; like many others in the current environment, Salesforce had to tame expectations for the rest of the year. The company cut its full-year revenue forecast to a range of $30.9 billion to $31 billion. The company had previously guided for revenue between $31.7 billion and $31.8 billion.
While stocks headed south in the post-earnings session, Goldman’s Rangan thinks the reaction was misplaced, and he sees plenty of reasons to remain bullish.
“Salesforce remains positioned to benefit from a number of secular trends driving growth in the company’s large and expanding TAM,” the analyst wrote. “We believe the company remains well-positioned to benefit from digital transformation as companies seek to form more holistic views of their customers.” We see continued room for improvement in unit economics as the company’s large installed base and extensive portfolio across multiple product categories position the company to increase the portfolio’s share of customers’ overall IT budgets.”
To that end, Rangan rates CRM a Buy along with a price target of $320. What does this suggest for investors? Advantage of healthy 100%.
Tech stocks tend to get a lot of attention, and Salesforce is no exception—the stock has 35 analyst reviews recorded, and they include 30 buys versus just 4 holds and 1 sell to give the company its strong consensus buy recommendation. While the average target isn’t as bullish as Rangan’s, at $227.67, investors could be sitting on a 42% one-year return. (See the Salesforce stock forecast at TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.