The digital transformation of most businesses has fueled the growth of the technology sector–especially the software industry–over the past year. This is evident in SPDR S&P Software & Services ETF’s (XSW) 58.2% gains over the past year compared to SPDR S&P 500 Trust ETF’s (SPY) 46.7% returns.
Driven by the high productivity rates and low overhead costs during the COVID-19 pandemic, most companies are expected to continue working remotely and be part of the adoption of Software-as-a-Service (SaaS) trend. As a result, the global SaaS market is expected to grow at a 12.5% CAGR over the next five years to hit $436.90 billion by 2025.
In addition to cloud computing, electric vehicles (EVs), artificial intelligence (AI), and the healthcare industry should contribute to benefit from the heightened demand for software solutions. Given this outlook, we believe Oracle Corporation (ORCL) and SS&C Technologies Holdings, Inc. (SSNC) are well positioned to deliver solid returns in the coming months.
Oracle Corporation (ORCL)
ORCL provides products and services that address all aspects of corporate information technology (IT) environments, including application, platform and infrastructure worldwide. The company operates through four segments—cloud services and license support, cloud license and on-premises license, hardware and services. ORCL markets and sells its solutions directly to businesses in various industries, government agencies, and educational institutions, as well as through indirect channels.
On May 6, The Premier League chose ORCL as its official cloud provider to deliver in-match statistics through ORCL’s data and analytics and machine learning technologies, beginning with the 2021-22 season. ‘Match Insights – Powered by Oracle Cloud’ should deliver immediate results based on live data streams, real-time tracking data, and League’s players’ profiles during global broadcast coverage and across the Premier League’s social channels, thus providing a data-rich experience.
On May 5, Mashreq Bank, one of the United Arab Emirates’ leading financial institutions, collaborated with ORCL to modernize its transaction banking capabilities in the Middle East and Africa. Mashreq will implement ORCL’s Transaction Banking platform with solutions for digital banking, payments, trade finance, liquidity management, and virtual accounts, to deliver faster innovation to its growing customer base.
The company’s non-GAAP total revenues have increased 2.9% year-over-year to $10.09 billion for its fiscal year 2020 third quarter, ended February 28. ORCL’s non-GAAP operating income came in at $4.78 billion, which represents a 9.8% rise from the prior-year period. Also, its non-GAAP net income is $3.49 billion for the quarter, up 10.3% year-over-year. ORCL’s EPS also increased 19.6% year-over-year to $1.16.
A $1.31 consensus EPS estimate for the current quarter, ending May 31, 2021, represents a 9.2% improvement year-over-year. ORCL surpassed the consensus EPS estimates in each of the trailing four quarters. The $11.04 billion consensus revenue estimate for the current quarter represents a 5.8% gain from the prior-year period. Analysts expect the stock’s EPS to grow at a 12.2% rate per annum over the next five years.
The stock has gained 52.9% over the past year and 45.6% over the past nine months. ORCL closed Friday’s trading session at $80.40.
ORCL’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a B grade for Quality, Value and Stability l. Click here to see the additional ratings for ORCL (Growth, Sentiment and Momentum).
ORCL is ranked #12 of 124 stocks in the Software – Application industry.
SS&C Technologies Holdings, Inc. (SSNC)
SSNC develops and delivers software solutions to financial services and healthcare industries. The company owns and operates technology stacks across securities accounting, front-to-back-office operations, performance and risk analytics, regulatory reporting, and healthcare information processes. The company also provides professional services, including consulting and implementation services to assist clients, and product support services.
On May 6, SSNC amended its Scheme Implementation Deed with Mainstream Group Holdings Limited to acquire 100% of Mainstream’s shares and outstanding equity rights for A$2.56 ($2.01) per security, representing an enterprise value of approximately A$376 million ($295.04 million).
SSNC partnered with BRODA Ltd. on May 5 to provide BRODA’s high dimensional Sobol sequence generators to financial services firms looking to improve data-driven analysis cost-effectively. SSNC has embedded BRODA’s Sobol sequence generators within its SS&C algorithmic suite of solutions to optimize risk performance, thus enabling faster and more accurate calculations.
For its fiscal first quarter ended March 31, SSNC’s total adjusted revenues increased 4.9% year-over-year to $1.24 billion. The company’s adjusted operating income was $475.80 million, which represented a 7.1% gain year-over-year. Its adjusted net income came in at $316.50 million for the quarter, up 15.5% from the prior-year period. SSNC’s adjusted EPS also increased 14.6% year-over-year to $1.18.
Analysts expect SSNC’s EPS to be $1.14 for the current quarter, ending June 30, which represents a 9.6% rise from the prior-year period. It surpassed the Street’s EPS estimates in each of the trailing four quarters. Also, the consensus revenue is estimated to be $1.21 billion for the current quarter, up 6.2% rise year-over-year. SSNC’s EPS is expected to grow at a 3% rate per annum over the next five years. The stock has gained 28% over the past year to close Friday’s trading session at $73.35.
It’s no surprise that SSNC has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock has an A grade for Momentum, and a B grade for Value, Growth and Sentiment. Click here to see the additional ratings for SSNC (Stability and Quality).
SSNC is ranked #2 of 59 stocks in the Software – Business industry.
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ORCL shares were trading at $80.49 per share on Monday afternoon, up $0.09 (+0.11%). Year-to-date, ORCL has gained 25.44%, versus a 12.47% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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