One of the top customer relationship management companies, San Francisco-based Salesforce.com, Inc. (CRM), reported top- and bottom-line growth for its fiscal first quarter, ended April 30, 2021. And on June 23, the company also announced a significant expansion of its global strategic partnership with Amazon.com, Inc.’s (AMZN) cloud segment—Amazon Web Services, Inc. (AWS)—on June 23. However, the stock has lost 2.1% over the past month and 7.8% over the past nine months to close yesterday’s trading session at $237.58.
On June 30, CRM announced the pricing of an offering of $8 billion of senior notes, the proceeds from which it expects to use to partially fund fees, costs, and expenses related to the acquisition of Slack Technologies, Inc. (WORK), among other uses. Analysts expect its EPS to decline 36.8% for the current quarter ending July 31, 2021, and 22.6% in 2022. But, given its weak earnings outlook, the stock looks overvalued at the current price level. In terms of forward EV/S and P/S, CRM’s respective 8.31x and 8.47x are higher than the 4.14x and 3.96x industry averages. However, the tech industry has immense growth potential given the increasing use of advanced technologies across most of the sectors. The increasing demand for IoT and AI-based products and services is further expected to drive the industry forward.
While CRM may not be a good bet right now, we think that one could cash in on the tech industry’s solid growth by betting on established players Microsoft Corporation (MSFT), Cisco Systems, Inc. (CSCO), Intel Corporation (INTC), and International Business Machines Corporation (IBM), which have immense upside potential.
Microsoft Corporation (MSFT)
MSFT is one of the world’s largest technology companies, with a $2.12 trillion market capitalization. The company’s segments include Productivity and Business Processes; Intelligent Cloud; and More Personal Computing. It is also known for its cloud computing arm, Microsoft Azure.
MSFT is scheduled to release its fiscal fourth quarter earnings results on July 27. MSFT’s total revenue increased 19.1% year-over-year to $41.71 billion for its fiscal third quarter, ended March 31, 2021. Its non-GAAP net income for the quarter came in at $14.84 billion, up 38% from the prior-year quarter. Its non-GAAP EPS came in at $1.95, which represents a 39% increase year-over-year.
Analysts expect MSFT’s EPS to increase 34.9% year-over-year to $7.77 in its fiscal year 2021. It surpassed consensus EPS estimates in each of the trailing four quarters. Its revenue is expected to increase 19.1% year-over-year to $42.54 billion for the quarter ending September 30, 2021.
On July 14, 2021, MSFT unveiled Windows 365, a cloud service that introduces a new way to experience Windows 10 or Windows 11 (when it becomes available) to businesses of all sizes. This further expands the company’s cloud-based products portfolio and is expected to positively impact its revenue. The stock has gained 35.1% over the past year to close yesterday’s trading session at $281.03.
It’s no surprise that MSFT has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has a B grade for Sentiment, Stability, and Quality. Click here to see MSFT’s ratings for Growth, Value, and Momentum as well. MSFT is ranked #16 of 132 stocks in the Software-Application industry.
Click here to check out our Software Industry Report for 2021
Cisco Systems, Inc. (CSCO)
Established tech player CSCO designs, manufactures, and sells Internet Protocol (IP)-based networking and other products related to the communications and information technology industry. It operates through three geographic segments: America; Europe, Middle East, and Africa; and Asia Pacific, Japan, and China.
For its fiscal third quarter, ended May 1, 2021, CSCO’s total revenue came in at $12.80 billion, which represents a 6.8% year-over-year rise. The company’s non-GAAP net income came in at $3.51 billion, up 4.2% from the prior-year quarter. Its non-GAAP EPS increased 5.1% year-over-year to $0.83.
CSCO’s EPS and revenue are expected to increase 6.2% and 4.5%, respectively, year-over-year to $3.40 and $51.92 billion in its fiscal year 2022. It surpassed the consensus EPS estimates in each l of the trailing four quarters.
The company completed the acquisition of Socio Labs, Inc. earlier this month, thereby expanding its Webex offerings beyond meetings, webinars and webcasts to include conferences and power the future of hybrid events. CSCO has rallied 34.2% over the past nine months to close yesterday’s trading session at $53.65.
CSCO’s POWR Ratings reflects this promising outlook. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. It has an A grade for Quality, and a B grade for Stability and Sentiment. In addition to these ratings, one can see CSCO’s ratings for Value, Growth, and Momentum here.
CSCO is ranked #6 of 55 stocks in the B-rated Technology-Communication/Networking industry.
Intel Corporation (INTC)
Operating for more than five decades, INTC’s technology has garnered significant attention over the years by delivering several breakthroughs. The company provides internet of things (IoT) products and computer vision and machine learning-based sensing technology, among other products. Its segments include Data Center Group (DCG) and Mobileye.
The company’s revenue from the IoT segment increased 13.5% year-over-year to $1.29 billion for its fiscal first quarter, ended March 27, 2021. INTC’s total current liabilities for the quarter decreased 2.4% sequentially to $24.15 billion. Its debt also decreased 1.9% year-over-year to $33.24 billion.
Analysts expect INTC’s EPS to increase at a 5.4% rate per annum over the next five years. It has surpassed Street’s EPS estimates in three of the trailing four quarters.
Expanding on its partnership with MSFT, INTC announced last month that it will deliver a completely reimagined computing experience with the forthcoming Windows 11 for the more than three-quarters of Windows PCs that are powered by INTC processors. The company’s executive vice president and general manager, Client Computing Group, Gregory Bryant, said “The combination of Windows 11 and Intel technologies and platforms offers unmatched performance, compatibility, and experiences on Windows, and we’re bringing people’s favorite experiences from the phone to the PC with Intel Bridge Technology.” The stock has gained 12% year-to-date to close yesterday’s trading session at $55.81.
INTC’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which equates to Buy in our POWR Ratings system. The stock has an A grade for Value, and a B grade for Quality. Click here to see the additional POWR Ratings for INTC (Growth, Momentum, Stability, and Sentiment).
INTC is ranked #16 of 99 stocks in the B-rated Semiconductor & Wireless Chip industry.
Click here to checkout our Semiconductor Industry Report for 2021
International Business Machines Corporation (IBM)
One of the most popular technology companies, IBM provides integrated solutions and services worldwide. The company operates through five segments: Cloud & Cognitive Software; Global Business Services; Global Technology Services; Systems; and Global Financing.
IBM’s revenue from its Cloud & Cognitive Software segment surged 3.8% year-over-year to $5.44 billion for its fiscal first quarter, ended March 31, 2021, while its revenue from its Global Business Services segment increased 2.4% year-over-year to $4.23 billion. The company’s non-GAAP gross profit came in at $8.38 billion, up 3.4% from the prior-year period. And its adjusted FCF increased 58.5% year-over-year to $2.15 billion.
For its fiscal year 2021, analysts expect IBM’s EPS to increase 25.8% year-over-year to $10.91. It surpassed the Street’s EPS estimates in three of the trailing four quarters. Its revenue is expected to be $18.29 billion for the quarter ended June 20, 2021, which represents a 3.2% year-over-year increase.
On July 15, 2021, IBM announced an agreement to acquire Bluetab Solutions Group, S.L. to extend its portfolio of data and hybrid cloud consulting services. This move is expected to “fuel migration to the cloud.” The stock has rallied 14.2% over the past year to close yesterday’s trading session at $140.45.
IBM’s strong fundamentals are reflected in its overall B rating, which equates to Buy in our proprietary POWR Ratings system. The stock has a B grade for Value, Momentum, and Quality. We have also graded IBM for Stability, Growth, and Sentiment. Click here to access all of IBM’s ratings.
IBM is ranked #11 of 45 stocks in the B-rated Technology – Hardware industry
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MSFT shares were trading at $281.26 per share on Friday afternoon, up $0.23 (+0.08%). Year-to-date, MSFT has gained 27.04%, versus a 16.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Ananyo Guha Niyogi
Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand. More...
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