The global pandemic propelled digital transformation and adoption of cloud-based solutions as work environments became remote. As a result, the technology sector thrived over the past two years. Looking forward, the cloud and XaaS market and the creation of a hybrid workforce could be foundational for the industry.
Meanwhile, several tech stocks have slumped significantly in price due to the Fed’s tightening monetary policy. However, analysts remained bullish about the industry’s long-term opportunities. Fundstrat’s Tom Lee believes that technology demand would soar as companies try to offset labor with tech amid a labor shortage, and the sector has a history of reviving itself after a market bottom.
Given this backdrop, the fundamentally strong tech stocks Fair Isaac Corporation (FICO), ON Semiconductor Corporation (ON), and Photronics, Inc. (PLAB) might be solid additions to one’s investment portfolio.
Fair Isaac Corporation (FICO)
FICO develops analytic, software, and data management products and services that allow businesses to automate, enhance, and connect decisions. The company operates through the two segments of Scores and Software.
In May, FICO announced that Elo, a Brazilian payments provider, had used FICO Falcon Fraud Manager to reduce fraud by 30 percent for card issuers using its payment network. The deployment of its offering might benefit the company.
Earlier in the same month, FICO launched the FICO Score 4 and FICO Extended Score 4 in Mexico, specifically for seamless incorporation of the entire credit file. Pablo Morales, Head of Latin America Global Partners & Alliances at FICO, stated, “In partnership with Circulo de Crédito, we are proudly bringing the dependability and industry-leading predictive power of the new FICO® Score 4 Suite to Mexico to expand access to credit in the region.”
FICO’s total revenues increased 7.8% year-over-year to $357.20 million in the second quarter ended March 31, 2022. Its operating income grew 50.3% from the year-ago value to $152.06 million, while non-GAAP net income improved by 37.1% from the prior-year period to $123.69 million. The company’s non-GAAP EPS increased 52.9% from its year-ago value to $4.68.
The consensus EPS estimate of $3.94 for the fiscal third quarter (ending June 2022) reflects a 16.6% improvement year-over-year. The consensus revenue estimate of $343.42 million for the same quarter indicates a 1.6% increase from the same period last year. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in all of the trailing four quarters.
The stock has gained 5.4% over the past month to close yesterday’s trading session at $381.14.
FICO’s POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
FICO is also rated an A in Quality and a B in Sentiment. Within the Software – Application industry, it is ranked #26 of 156 stocks. To see additional POWR Ratings for Growth, Value, Momentum, and Stability for FICO, click here.
ON Semiconductor Corporation (ON)
ON operates as a worldwide provider of intelligent sensing and power solutions that electrifies the automotive industry, allows for lighter and longer-range electric vehicles (EV) and empowers fast-charging systems. The company operates through its three broad segments the Power Solutions Group; the Advanced Solutions Group; and the Intelligent Sensing Group.
In May, the company announced that global automotive innovator NIO Inc. (NIO) chose its VE-Trac™ Direct SiC power modules for NIO’s next-generation electric vehicles. ON expects to expand its SiC capacity to address the needs of the EV market.
In February, ON announced that it had signed a definitive agreement to divest its South Portland, Maine fab after closing the sale of its wafer fabrication facility in Oudenaarde, Belgium. The proposed divestiture is expected to be a step toward a more efficient manufacturing network.
In the fiscal first quarter ended April 1, ON’s revenue has increased 31.3% year-over-year to $1.95 billion. Its non-GAAP gross margin increased 1420 basis points from its year-ago value to 49.4%. Non-GAAP net income attributable to ON and non-GAAP EPS came in at $538.50 million and $1.22, up 255.9% and 248.6% from the prior-year period.
Analysts expect ON’s revenue for the second quarter (ending June 2022) to come in at $2.02 billion, indicating a 20.76% year-over-year growth. Street expects the company’s EPS to increase 100% year-over-year for the same quarter to $1.26. Additionally, ON has beaten consensus EPS estimates in each of the trailing four quarters, which is impressive.
ON has gained 48.4% over the past year and marginally over the past three months to close yesterday’s trading session at $56.07. It has declined marginally over the past month.
It is no surprise that ON has an overall B rating, which translates to Buy in our POWR Rating system. The stock has an A grade for Growth. In the B-rated Semiconductor & Wireless Chip industry, it is ranked #27 of 95 stocks.
Beyond what we’ve stated above, we have also given ON grades for Momentum, Value, Stability, Sentiment, and Quality. Get all the ON ratings here.
Photronics, Inc. (PLAB)
PLAB manufactures and sells photomask products and services internationally. The company offers its products to semiconductor and FPD manufacturers, designers, and foundries through its sales personnel and customer service representatives.
For the second quarter ended May 1, PLAB’s revenue was $204.51 million, up 28% year-over-year. Its operating income rose 150.4% from the year-ago value to $52.11 million. The company’s net income increased 178.4% year-over-year to $45.44 million, while its EPS grew 188.2% from the prior-year quarter to $0.49.
Street EPS estimate for the third quarter (ending July 2022) of $0.50 indicates a 78.6% year-over-year growth. Street revenue estimate of $210 million for the same quarter reflects a rise of 23.1% from the prior-year period. PLAB has topped Street EPS estimates in each of the trailing four quarters.
The stock has gained 47.8% over the past year and 28.9% over the past month to close yesterday’s trading session at $19.87.
PLAB’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to Strong Buy in our POWR Ratings system.
PLAB has an A grade for Sentiment and a B grade for Growth, Value, and Quality. It is ranked #4 in the Semiconductor & Wireless Chip industry. Click here to see the additional POWR Ratings for PLAB (Stability and Momentum).
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FICO shares were trading at $379.35 per share on Tuesday afternoon, down $1.79 (-0.47%). Year-to-date, FICO has declined -12.53%, versus a -21.39% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...
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