The shift to remote work structures has helped the tech industry thrive since the onset of the COVID-19 pandemic. Studies show that every second 127 new devices worldwide are connected to the internet. In addition, the number of smart devices collecting and analyzing data is expected to hit 50 billion by 2030.
Spending on artificial intelligence (AI) has increased significantly due the increasing demand for automation over the past years. Furthermore, AI technology is expected to remain a top priority for federal agencies for data collection and storage solutions. The growth of the software industry is evidenced by the SPDR S&P Software & Services ETF’s (XSW) 37.9% gains over the past year versus the SPDR S&P 500 ETF Trust’s (SPY) 27.4% returns.
Since current market volatility caused by factors including an expected increase in interest rates and rising Treasury yields could lead to high-priced popular tech stocks suffering a price decline in the near term, we think lesser-known tech stocks with sound financials—Viavi Solutions Inc. (VIAV) and Commvault Systems, Inc. (CVLT)—could be ideal bets to cash in on the industry tailwinds.
Viavi Solutions Inc. (VIAV)
VIAV is a network test, monitoring, and assurance solutions provider. The Milpitas, Calif.-based company’s Network and Service Enablement (NSE) segment helps organizations optimize complex networks, and its Optical Security and Performance Products (OSP) segment offers optical coatings.
On September 29, the company closed an offering of 3.750% senior notes due 2029. The offering is expected to generate approximately $393 million in net proceeds that will help VIAV reach its growth objectives by allowing it financial flexibility.
On September 28, VIAV revealed its new communications test and alignment solution that enables radio technicians to test radio and broadband network infrastructure. The latest addition to the company’s portfolio should generate a new income stream by assuring radio technicians safety in radio networks.
In its fiscal fourth quarter, ended July 3, VIAV’s net revenues increased 16.6% year-over-year to $310.90 million. Its non-GAAP operating margin rose 120 basis points from the prior-year quarter to 20.8%. Its non-GAAP income from operations and non-GAAP net income per share stood at $64.70 million and $0.22, registering a 23.7% and 22.2% year-over-year improvement, respectively.
A $0.86 consensus EPS estimate for the current year (fiscal 2022) indicates a 3.6% year-over-year increase. Likewise, the $1.27 billion consensus revenue estimate for the current year reflects a 6% rise from the prior year. Furthermore, VIAV has an impressive earnings surprise history; it has topped the consensus EPS estimates in each of the trailing four quarters. The stock has gained more than 18% in price over the past year. It has also gained roughly 2% year-to-date.
VIAV’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B Growth, Value, Stability, Sentiment, and Quality grade. In the 55-stock, B-rated Technology – Communication/Networking industry, it is ranked #1. Click here to see the additional POWR Ratings for VIAV (Momentum).
Commvault Systems, Inc. (CVLT)
CVLT is an Oceanport, N.J.-based data solutions company that provides data protection, optimization, storage, and usage services globally. The company also devises software that provides insights for businesses.
On October 5, CVLT made its Backup-as-a-Service (BaaS) solutions available across 30 countries. The solution is expected to give CVLT an edge in the rapidly increasing cloud-services field and enable the company to cater to the global demand for cybersecurity and recoverability.
In September, the company added Ransomware services to its data security solutions portfolio. Regarding this introduction, Ram Menashe, Vice President of Global Services at CVLT, said, “These services represent our commitment to keeping our customers’ data safe and recoverable while continuing to provide innovative, industry-leading products.”
For its first fiscal quarter of 2022, ended June 30, CVLT’s total revenues increased 6% year-over-year to $183.42 million. Its non-GAAP income from operations advanced 26.3% from the prior-year quarter to $41 million, while its non-GAAP net income stood at $30.03 million, up 25.4% from the same period last year. Its non-GAAP EPS rose 21.6% year-over-year to $0.62.
Analysts expect its EPS to increase 22.3% year-over-year to $2.58 in the current year (fiscal 2022). The Street’s $769.89 million revenue estimate for the current year indicates a rise of 6.4% from the prior year. In addition, CVLT has beaten consensus EPS estimates in each of the trailing four quarters, which is impressive. CVLT’s stock has gained more than 70% over the past year and roughly 33% year-to-date.
It’s no surprise that CVLT has an overall A rating, which translates to Strong Buy in our POWR Rating system. The stock also has an A grade for Quality, and a B grade for Growth and Value. It is ranked #2 of the 158 stocks in the Software – Application industry.
In addition to the POWR Rating grades we’ve stated above, one can see CVLT ratings for Momentum, Stability, and Sentiment here.
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VIAV shares were trading at $15.06 per share on Wednesday afternoon, up $0.02 (+0.13%). Year-to-date, VIAV has gained 0.57%, versus a 17.15% 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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