Most technology stocks outperformed the broader market last year thanks to COVID-19-pandemic-driven trends. This is evidenced by the iShares Expanded Tech Sector ETF’s (IGM) 42.9% gains last year versus the S&P 500’s 18.2% returns. However, inflation fears and rising Treasury yields lately have led to a rotation by investors away from expensive tech stocks to quality bargains.
Yet, analysts expect the global information technology market to grow at a CAGR of 9% over the next five years to hit $118.66 trillion in 2025. Due to the increasing demand for cloud services, cybersecurity systems and other technologies with the continuation of remote working, we think the the current tech sell-off is likely to be short-lived.
While tech stocks that are still trading at expensive valuations may continue to experience weakness until they reach their fair value, we believe undervalued stocks SYNNEX Corporation (SNX), Verint Systems Inc. (VRNT) and NETGEAR, Inc. (NTGR) could deliver solid upside in the near term.
SYNNEX Corporation (SNX)
SNX is a business process services company that provides a range of distribution, logistics and integration services for the technology industry and outsourced services focused on customer engagement strategy. The company, through its Technology Solutions segment, distributes peripherals, information technology (IT) systems, consumer electronics (CE) and complementary products. It also provides systems design and integration solutions. SNX also offers marketing services, and serves resellers, system integrators, and retailers.
SNX has merged with Tech Data, one of the world’s largest technology distributors, at a value of $7.2 billion, including net debt. The combined company, with estimated pro forma annual revenues of $57 billion, will provide expansive reach across products, services, and geographies to accelerate technology adoption.
Last month, SNX was named Samsung 2020 Mobile Distribution Partner of the Year based on total sales volume. And since March 10, SNX has collaborated with Hewlett Packard Enterprise Company (HPE) to offer HPE GreenLake cloud services to reseller partners through its Stellar Marketplace.
SNX’s revenue for its fiscal year 2021 first quarter, ended February 28, 2021, was $4.94 billion, which represents an improvement of more than 21% year-over-year. The company’s gross profit increased 19.4% year-over-year to $304.57 million. Its non-GAAP operating income was $156 million for the quarter, which represents an improvement of more than 35% year-over-year. SNX’s non-GAAP income from continuing operations was $97.56 million, up 34.3% year-over-year. Also, its non-GAAP EPS increased 33.1% year-over-year to $1.89.
In terms of non-GAAP forward price/earnings, SNX is currently trading at 14.51x, 44.9% lower than the industry average 26.33x. In terms of forward price/sales, SNX is currently trading at 0.29x, 92.7% lower than the industry average 4.04x.
A consensus EPS estimate of $1.91 for the current quarter, ending May 31, represents an improvement of 4.4% year-over-year. Also, SNX surpassed consensus EPS estimates in each of the trailing four quarters. The stock has gained 63.3% over the past year and closed yesterday’s trading session at $120.16.
SNX’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, 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 an A grade for Value. We have also graded SNX for Growth, Momentum, Quality, Stability, and Sentiment. Click here to access all SNX’s ratings.
SNX is ranked #9 of 78 stocks in the Technology – Services industry.
Verint Systems Inc. (VRNT)
VRNT is an enterprise software company that provides actionable intelligence solutions and value-added services worldwide. The company operates through two segments—Customer Engagement and Cyber Intelligence segments. Its Customer Engagement segment provides workforce engagement management services, in addition to compliance and fraud software. These offerings are deployed on-premises, in the public cloud, or through a perpetual license model. The Cyber Intelligence segment produces data mining software to prevent terror, crime, and cyber threats.
On April 5, 2021, VRNT proposed an offering of $250 million of convertible senior notes due 2026 through private placement. Also, VRNT expects to close its second tranche investment on April 6 with funds advised by Apax Partners and signed in December 2019, with a conversion price of $50.25. VRNT’s Customer Engagement segment has named Avaya Latin America, Belltech, ddCom and Wittel as winners of its Latin American Partner of the Year award on March 31, 2021.
For the fiscal 2021 fourth quarter (ended January 31, 2021), the company’s non-GAAP revenue has increased 6.1% sequentially to $351.43 million, with revenues from its Customer Engagement segment increasing 4.3% sequentially to $226.86, and from its Cyber Intelligence segment increasing 9.6% sequentially to $124.57 million. VRNT’s non-GAAP gross profit has increased 4.8% sequentially to $246.27 million. The company’s non-GAAP net income came in at $69.17 million, while the non-GAAP EPS was $0.98 for the fourth quarter. Its total assets have increased 8.1% year-over-year to $3.26 billion as of January 31, 2021.
In terms of non-GAAP forward price/earnings, VRNT’s 20.80x is 21% lower than the industry average 26.33x. In terms of forward price/sales, VRNT is currently trading at 3.47x, 14.2% lower than the industry average 4.04x.
Analysts expect VRNT’s EPS to improve 16.5% year-over-year for the next fiscal period ending January 30, 2023, to $2.55. It surpassed the Street’s EPS estimates in three of the trailing four quarters. And its consensus revenue estimate of $914.84 million for the fiscal 2023 represents a 6.5% rise on a year-over-year basis. The stock has gained 24.6% over the past year and closed yesterday’s trading session at $45.91.
VRNT’s POWR Ratings reflect its solid prospects. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
The stock has an A grade for Value, and a B grade for Sentiment and Growth. In addition to the POWR Ratings grades we’ve just highlighted, one can see VRNT’s ratings for Momentum, Stability, and Quality here.
VRNT is ranked #5 of 61 stocks in the Software – Business industry.
NETGEAR, Inc. (NTGR)
NTGR designs, develops and markets networking solutions and smart connected products for consumers, businesses and service providers. The company operates through two segments — Connected Home and Small and Medium Business. NTGR’s product line consists of devices that include network attached storage, wireless controllers and access points, unified storage products, Internet protocol (IP) security cameras, and home automation devices and services. It also offers value-added services that include technical support, parental controls, and cybersecurity protection.
On March 30, NTGR announced the availability of the GS316EP and GS316EPP PoE+ Gigabit Ethernet Plus switches that deliver more convenience to small businesses, retail shops, and home-based businesses with larger Power-over-Ethernet (PoE) budgets. Also in March, NTGR announced the addition of a new Nighthawk Tri-band Mesh WiFi 6 System (MK83) to its family of Nighthawk Mesh. It has been designed to cover the whole home with high-performance WiFi to manage more devices on the network. Also, NTGR has expanded its new series of IP switches designed and purpose built for the growing audio and video over IP market.
The company’s net revenue has increased 45.1% year-over-year to $367.07 million for the fourth quarter ended December 31, 2020. NTGR’s non-GAAP gross profit was $112.26 million, which represents 59.3% improvement year-over-year. The company’s non-GAAP operating income was $40.25 million, up nearly 265% year-over-year. Its non-GAAP net income has increased 198.9% year-over-year to $30.96 million for the quarter. Also, NTGR’s non-GAAP EPS has increased 191.2% year-over-year to $0.99.
In terms of non-GAAP forward price/earnings, NTGR’s 12.87x is 51.1% lower than the industry average 26.33x. In terms of forward price/sales, NTGR is currently trading at 0.95x, which is 76.6% lower than the industry average 4.04x.
Analysts expect NTGR’s EPS for the next quarter, ending June 30, 2021, to be $0.74, up 37% year-over-year. It’s earnings surprise history looks impressive; the company has surpassed the consensus EPS estimate in each of the trailing four quarters. Also, for the next quarter, analysts expect NTGR’s revenue to be $325.62 million, representing a 38.4% rise from the prior-year period.
The stock has gained 90.7% over the past year to close Thursday’s trading session at $160.38. It has gained 93.5% since hitting its 52-week low of $82.90.
It’s no surprise that NTGR has an overall B rating, which equates to Buy in our POWR Ratings system. The stock has an A grade for Growth and Value. Click here to see the additional POWR Ratings for NTGR (Sentiment, Momentum, Quality, and Stability).
NTGR is ranked #15 of 55 stocks in the Technology – Communication/Networking industry.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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SNX shares were trading at $120.66 per share on Tuesday afternoon, up $0.50 (+0.42%). Year-to-date, SNX has gained 48.49%, versus a 8.98% 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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