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Splunk (SPLK) is a Solid Portfolio Pick Right Now: Here's Why
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Shares of Splunk Inc. have risen a stellar 78.8% over the past year as it continues to gain traction from healthy customer engagement, evident from the consistently high net retention and competitive win rates alongside solid momentum with large orders overall.
Earnings estimates for the current fiscal have surged 148% over the past year, while that for the next fiscal are up 89.3%, implying solid inherent growth potential. With healthy fundamentals, this Zacks Rank #1 (Strong Buy) software solutions provider appears to be a solid investment option at the moment. You can see the complete list of today’s Zacks #1 Rank stocks here.
Image Source: Zacks Investment Research
Growth Drivers
San Francisco, CA-based Splunk provides software solutions that enable enterprises to gain real-time operational intelligence by harnessing the value of their data. The company’s offerings enable users to investigate, monitor, analyze and act on machine data and big data, irrespective of format or source, and help in operational decision-making.
The company’s software has a broad range of applications, including security analytics, business analytics and IT operations. The valuable insight into machine and big data allows users/enterprises to improve service levels, reduce operational costs, mitigate security risks and maintain compliance. This has enabled the company to strengthen its market position.
Splunk recently inked a definitive agreement to merge with Cisco Systems Inc. (CSCO - Free Report) . Per the deal, Cisco aims to acquire Splunk for approximately $28 billion. The acquisition is set to be completed by the end of the third quarter of 2024. The merger is expected to accelerate research and development of next-generation solutions that will harness the true value of data and provide enhanced security analytics.
The combined company will also boost the development of AI-enabled solutions. Cisco is actively investing in AI, and the incorporation of Splunk’s advanced AI-powered solutions will immensely bolster its AI-driven service offerings.
Splunk’s software can be deployed in a wide variety of computing environments, from a single laptop to large globally distributed data centers as well as public, private and hybrid cloud environments. The company’s top line is benefiting from the high demand for its cloud solutions. Splunk’s ES (Enterprise Security) solutions also hold promise. Users leverage ES to centralize security management on a single platform and better handle the big data scale of their security operations center.
It also benefits from the ongoing security threats and information and event management replacement cycle. Further, the company’s integration with Amazon Web Services (“AWS”) security hub to help customers accelerate detection, investigation and response to potential threats within their AWS security environment is likely to be a key catalyst in the long haul.
The company’s business transition from perpetual licenses to subscription or renewable model is expected to benefit it in the long run. Splunk has been witnessing an increase in the number of renewable term contracts, which is a tailwind. Cloud annual recurring revenues (ARR) in second-quarter fiscal 2024 improved 16% year over year to $3.86 billion. The company had 834 customers with ARR greater than $1 million.
The company delivered an earnings surprise of 154.9%, on average, in the trailing four quarters and has a long-term earnings growth expectation of 26.6%.
Other Key Picks
Arista Networks, Inc. (ANET - Free Report) , carrying a Zacks Rank #2 (Buy), is likely to benefit from strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has a long-term earnings growth expectation of 18.7% and delivered an earnings surprise of 12.8%, on average, in the trailing four quarters.
It holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed datacenter segment. Arista is increasingly gaining market traction in 200- and 400-gig high-performance switching products and remains well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations.
AudioCodes Ltd. (AUDC - Free Report) is a Zacks Rank #2 stock. It has a long-term earnings growth expectation of 4.3% and delivered an earnings surprise of 2.2%, on average, in the trailing four quarters.
Headquartered in Lod, Israel, AudioCodes offers advanced communications software, products, and productivity solutions for the digital workplace. It provides a broad range of innovative products, solutions and services that are used by large multi-national enterprises and leading tier-1 operators around the world.
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Splunk (SPLK) is a Solid Portfolio Pick Right Now: Here's Why
Shares of Splunk Inc. have risen a stellar 78.8% over the past year as it continues to gain traction from healthy customer engagement, evident from the consistently high net retention and competitive win rates alongside solid momentum with large orders overall.
Earnings estimates for the current fiscal have surged 148% over the past year, while that for the next fiscal are up 89.3%, implying solid inherent growth potential. With healthy fundamentals, this Zacks Rank #1 (Strong Buy) software solutions provider appears to be a solid investment option at the moment. You can see the complete list of today’s Zacks #1 Rank stocks here.
Image Source: Zacks Investment Research
Growth Drivers
San Francisco, CA-based Splunk provides software solutions that enable enterprises to gain real-time operational intelligence by harnessing the value of their data. The company’s offerings enable users to investigate, monitor, analyze and act on machine data and big data, irrespective of format or source, and help in operational decision-making.
The company’s software has a broad range of applications, including security analytics, business analytics and IT operations. The valuable insight into machine and big data allows users/enterprises to improve service levels, reduce operational costs, mitigate security risks and maintain compliance. This has enabled the company to strengthen its market position.
Splunk recently inked a definitive agreement to merge with Cisco Systems Inc. (CSCO - Free Report) . Per the deal, Cisco aims to acquire Splunk for approximately $28 billion. The acquisition is set to be completed by the end of the third quarter of 2024. The merger is expected to accelerate research and development of next-generation solutions that will harness the true value of data and provide enhanced security analytics.
The combined company will also boost the development of AI-enabled solutions. Cisco is actively investing in AI, and the incorporation of Splunk’s advanced AI-powered solutions will immensely bolster its AI-driven service offerings.
Splunk’s software can be deployed in a wide variety of computing environments, from a single laptop to large globally distributed data centers as well as public, private and hybrid cloud environments. The company’s top line is benefiting from the high demand for its cloud solutions. Splunk’s ES (Enterprise Security) solutions also hold promise. Users leverage ES to centralize security management on a single platform and better handle the big data scale of their security operations center.
It also benefits from the ongoing security threats and information and event management replacement cycle. Further, the company’s integration with Amazon Web Services (“AWS”) security hub to help customers accelerate detection, investigation and response to potential threats within their AWS security environment is likely to be a key catalyst in the long haul.
The company’s business transition from perpetual licenses to subscription or renewable model is expected to benefit it in the long run. Splunk has been witnessing an increase in the number of renewable term contracts, which is a tailwind. Cloud annual recurring revenues (ARR) in second-quarter fiscal 2024 improved 16% year over year to $3.86 billion. The company had 834 customers with ARR greater than $1 million.
The company delivered an earnings surprise of 154.9%, on average, in the trailing four quarters and has a long-term earnings growth expectation of 26.6%.
Other Key Picks
Arista Networks, Inc. (ANET - Free Report) , carrying a Zacks Rank #2 (Buy), is likely to benefit from strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has a long-term earnings growth expectation of 18.7% and delivered an earnings surprise of 12.8%, on average, in the trailing four quarters.
It holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed datacenter segment. Arista is increasingly gaining market traction in 200- and 400-gig high-performance switching products and remains well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations.
AudioCodes Ltd. (AUDC - Free Report) is a Zacks Rank #2 stock. It has a long-term earnings growth expectation of 4.3% and delivered an earnings surprise of 2.2%, on average, in the trailing four quarters.
Headquartered in Lod, Israel, AudioCodes offers advanced communications software, products, and productivity solutions for the digital workplace. It provides a broad range of innovative products, solutions and services that are used by large multi-national enterprises and leading tier-1 operators around the world.