Tech stocks have thrived this year, buoyed by demand for collaboration software, devices, gaming, and cloud computing services as people spent more time at home. Governmental stay-at-home edits due to the pandemic have clearly accelerated the pace and future adoption of digitization. Even after vaccines eventually knock out COVID-19, as is anticipated, people are expected to keep shopping and conducting their businesses online in ways they had not done prior to the pandemic’s lockdown requirements.
Tech stocks such as Autodesk, Inc. (ADSK) and Dell Technologies Inc. (DELL) have outperformed the broader market so far this year. Both companies have reported third- quarter profits well above analyst estimates. Their strong business models leave them well positioned because industries are expected to keep shifting to cloud-based facilities.
These two companies have reported top-line growth and strong cash flow balances for the last quarter, reflecting sustainability in their business. Their fundamentals and innovations should help their stocks grow in tandem with global economic recovery we believe.
In contrast, the businesses of DXC Technology Company (DXC) and Sabre Corporation (SABR) have suffered as consumers have pulled back on their spending amid the pandemic. As global travel has fallen sharply, these companies, which provide software and services to airlines, hotels and booking agents, have been bearing the brunt of a business decline. Because they are expected to experience a decline in earnings and revenue in the coming quarters, we think it is advisable to avoid them for now.
Stocks to buy:
Autodesk, Inc. (ADSK)
ADSK is a software design and services company that offers visualization software, documentation solutions for civil engineering, and cloud-based software and computer-aided engineering tools. The company sells its products and services to customers directly, as well as through distributors and resellers.
On December 16, ADSK announced that leading specialty contractors, including Helm Mechanical, Veit & Company and MAREK have committed to standardize on ADSK’s cloud-based construction management to increase collaboration, mitigate risk, and reduce rework. ADSK plans to deliver technology that strengthens and evolves with the industry and, thereby, boosts its business.
On November 24, ADSK announced the completion of its acquisition of Spacemaker for $240 million. This marks ADSK’s thirteenth investment in design and construction solutions providers in three years, including five acquisitions.
ADSK’s revenue has increased 13% year-over-year to $952 million in the third quarter ended September 30, 2020. Its GAAP operating income has grown 51.4% from the year-ago value to $168 million, while gross profit rose 13.8% year-over-year to $868.7 million over this period.
The consensus EPS estimate of $1.07 for the current quarter ending January 31, 2021 represents a 16.3% improvement year-over-year. ADSK has an impressive earnings surprise history, with the company beating consensus EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $1.01 billion for the current quarter represents a 12.3% increase from the same period last year. The stock has gained 63.9% over the past year.
How does ADSK stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
A for Peer Grade
B for Industry Rank
A for Overall POWR Rating.
You cannot ask for better. The stock is also ranked #2 of 48 stocks in the Software – Business industry.
Dell Technologies Inc. (DELL)
DELL is a leading computer technology company involved in the development, manufacturing and selling of IT hardware, software, and services solutions worldwide. The company operates through three segments: Infrastructure Solutions Group (ISG), Client Solutions Group (CSG), and VMware.
The company has been working with FedEx (FDX) and Switch to develop exascale multi-cloud edge infrastructure services and help customers overcome performance barriers for latency-sensitive applications. This will expand DELL’s service offering and allow it to offer its customers faster access to their workloads and data for greater flexibility and speed.
DELL’s revenue has increased 3% year-over-year to $23.480 billion in the third quarter ended October 31, 2020. Net income rose 60% from the year-ago value to $881 million, while EPS increased 64% from the prior-year quarter to $1.08. Adjusted EBITDA grew 13% year-over-year to $3.23 billion over this period.
The consensus EPS estimate of $1.59 for the next quarter ending April 30, 2021 indicates an 18.7% improvement year-over-year. DELL has an impressive earnings surprise history, with the company beating consensus EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $22.29 billion for the next quarter represents a 6.9% increase from the same period last year. The stock has gained 43.6% over the past year.
DELL’s promising outlook is reflected in its POWR Ratings. It is rated “Strong Buy” with an “A” for Trade Grade, Buy & Hold Grade, and Industry Rank, and a “B” for Peer Grade. It is ranked #2 of 30 stocks in the Technology – Hardware industry.
Stocks to avoid:
DXC Technology Company (DXC)
DXC offers information technology services and solutions primarily in North America, Europe, Asia, and Australia. The company operates in the two segments: Global Business Services (GBS) and Global Infrastructure Services (GIS). It provides IT outsourcing services supporting infrastructure, applications, and workplace IT operations.
On December 8, DXC announced a five -year renewal of its IT outsourcing contract with SEG Automotive Germany to manage the company’s local data center. This will enable DXC to deliver new levels of performance, competitiveness, and customer experiences.
On December 2, the company announced a strategic collaboration with Microsoft (MSFT) to deliver a more personalized, intelligent, secure, and modern workplace experience for global organizations. This partnership will allow DXC to accelerate the deployment of cloud-based services to enhance employee experiences and create much more value for its customers.
However, DXC’s GIS revenue has decreased 9.9% year-over-year to $2.31 billion in the fiscal second quarter ended September 30, 2020. Its gross profit margin under the GIS segment declined 7.9% from the year-ago value due to the impact of prior terminations and price-downs. The company reported a net loss of $246 million and an EPS loss of $0.96 over this period.
The consensus EPS estimate of $0.54 for the current quarter ending December 31, 2020 indicates a 56.8% decline year-over-year. The consensus revenue estimate of $4.19 billion for the current quarter indicates a 16.5% decline from the same period last year. The stock has lost 38.8% over the past year and is currently trading 36.2% below its 52-week high.
DXC’s poor prospects are also apparent in its POWR Ratings, which gives it a Neutral rating. It has a “C” for Trade Grade, a “D” for Buy & Hold Grade, Peer Grade and Industry Rank. It is ranked #27 of 60 stocks in the Technology – Services industry.
Sabre Corporation (SABR)
SABR offers technology solutions to the travel and tourism industry worldwide, operating through three segments: Travel Network, Airline Solutions, and Hospitality Solutions. The company’s products include SabreSonic Customer Sales & Service, Sabre AirVision Marketing & Planning, and Sabre AirCentre Enterprise Operations.
On December 16, SABR and the Lufthansa Group airlines announced a new distribution agreement that enables modern airline retailing as well as technology innovation. This will allow SABR to achieve distribution flexibility and evolve its global travel marketplace.
Also, SABR and Latham Airlines recently announced the implementation of Sabre’s Select Shopping solutions on the carrier’s website and call center, to help Latham compete with low-cost carriers. This will allow the company to provide end-to-end servicing and support solutions that help its customers operate more efficiently, drive revenue and offer personalized traveller experiences.
SABR’s revenue has decreased 72% year-over-year to $278.37 million in the third quarter ended September 30, 2020, while its adjusted gross profit declined 68% from the year-ago value to $192.83 million. The company reported a net loss of $312.45 million, and an EPS loss of $1.07 over this period.
The consensus EPS estimate for the current quarter ending December 30, 2020 indicates a 512.5% decline year-over-year. The consensus revenue estimate of $328.57 million for the current quarter indicates a 65.1% decline from the same period last year. The stock has declined 49.9% over the past year and is currently trading 48.9% below its 52-week high.
SABR’s POWR Ratings are consistent with this bleak outlook. It has an overall rating of “Sell” and a “C” for Trade Grade, a “D” for Peer Grade, with an “F” for Buy & Hold Grade. It is ranked #39 of 61 stocks in the Internet industry.
Want More Great Investing Ideas?
ADSK shares were trading at $298.74 per share on Tuesday morning, down $0.91 (-0.30%). Year-to-date, ADSK has gained 62.84%, versus a 17.95% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
More Resources for the Stocks in this Article
|Ticker||POWR Rating||Industry Rank||Rank in Industry|
|ADSK||Get Rating||Get Rating||Get Rating|
|DELL||Get Rating||Get Rating||Get Rating|
|DXC||Get Rating||Get Rating||Get Rating|
|SABR||Get Rating||Get Rating||Get Rating|