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SAP Grows on Sturdy IoT, Cloud Prospects; Macro Woes Stay
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We issued an updated research report on German software giant – SAP SE (SAP - Free Report) – on Jan 9, 2017. Headquartered in Walldorf, Germany, SAP is one of the largest independent software vendors in the world and the leading provider of enterprise resource planning (“ERP”) software.
Over the past six months, SAP’s shares recorded an average return of 13.4%, outperforming the Zacks categorized Computer Software-Services industry average return of 10.5%. However, the company has a dismal track record as far as earnings are concerned, having missed estimates thrice in the trailing four quarters, with an average negative surprise of 1.8%.
In the recent past, the company had seen negative activity on the estimates revision front. However, over the past couple of months, analysts’ opinion on the company’s expected earnings remained unchanged, with the Zacks Consensus Estimate for 2016 earnings at $3.12.
Of late, SAP’s earnings have been vulnerable to intensifying competition in the IT services industry, sluggish global economy and currency fluctuations, which are weighing on its profits. Prolonged softness in certain countries and inherent seasonality in technology spending of clients also exposes the company’s sales to risks of quarterly fluctuations. Moreover, the Brexit referendum may impact business confidence adversely and poses a risk.
However, SAP remains bullish about the immense growth prospects of its cloud business, and believes that the worldwide market for connected sensors and smart devices will be worth about €250 billion, by the end of this decade.
It has already undertaken investments worth about $2.2 billion, to expand its IoT horizons, which will likely turn out to be the fundamental catalyst for SAP’s future growth. As part of the same, SAP is acquiring Italian IoT firm – Plat.One – as part of its IoT initiative. Plat.One will enable SAP to integrate essential IoT capabilities into the SAP HANA Cloud Platform.
Further, the company has earmarked a budget for further bolt-on acquisitions to fortify the IoT portfolio, going forward. The company has also announced plans to launch a new product line — SAP IoT — which will integrate huge amounts of data from things connected to the Internet, with machine learning and SAP's real-time database S/4 HANA. The IoT market is anticipated to grow to almost $11 trillion, by the year 2025, and we believe that these investments will lend a major boost to SAP as it establishes a footprint in the budding IoT space.
This apart, sustained exceptional market traction of SAP S/4 HANA – the company’s proprietary offering – is propelling the company’s growth. We believe that steady market traction of these new products will significantly bolster the company’s top-line performance, going forward. Moreover, robust growth of human capital management, customer engagement and commerce solutions are adding to the sales momentum.
However, SAP continues to struggle with weakness in some key end markets such as Latin American countries and China, which may constrain revenue growth. Further, some reports suggest that the global IT industry is likely to remain sluggish in the near term. The cloud space has also become intensely competitive.
Despite such headwinds, we believe that this Zacks Rank #3 (Hold) company has several growth drivers in place and its growth story remains impressive over the medium term.
Stocks to Consider
Some better-ranked stocks in the broader computer & technology sector Exa Corp. , Science Applications International Corporation (SAIC - Free Report) and SecureWorks Corp. (SCWX - Free Report) . While Exa Corp. sports a Zacks Rank #1 (Strong Buy), Science Applications and SecureWorks Corp. carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Exa Corporation develops, markets, sells, and supports software products, and provides professional services for simulation-driven design. The company has an excellent earnings surprise history, beating estimates each time over the trailing four quarters and has an average beat of 52.4%.
Science Applications International Corporation provides technical, engineering, and enterprise information technology services in the U.S. It boasts a remarkable average surprise of 9.2% for the trailing four quarters, beating estimates all through.
SecureWorks Corp. provides intelligence-driven information security solutions focused on protecting organizations from cyber attacks. The company has beaten estimates twice in the trailing four quarters, with an average surprise of 34.2%.
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SAP Grows on Sturdy IoT, Cloud Prospects; Macro Woes Stay
We issued an updated research report on German software giant – SAP SE (SAP - Free Report) – on Jan 9, 2017. Headquartered in Walldorf, Germany, SAP is one of the largest independent software vendors in the world and the leading provider of enterprise resource planning (“ERP”) software.
Over the past six months, SAP’s shares recorded an average return of 13.4%, outperforming the Zacks categorized Computer Software-Services industry average return of 10.5%. However, the company has a dismal track record as far as earnings are concerned, having missed estimates thrice in the trailing four quarters, with an average negative surprise of 1.8%.
In the recent past, the company had seen negative activity on the estimates revision front. However, over the past couple of months, analysts’ opinion on the company’s expected earnings remained unchanged, with the Zacks Consensus Estimate for 2016 earnings at $3.12.
Of late, SAP’s earnings have been vulnerable to intensifying competition in the IT services industry, sluggish global economy and currency fluctuations, which are weighing on its profits. Prolonged softness in certain countries and inherent seasonality in technology spending of clients also exposes the company’s sales to risks of quarterly fluctuations. Moreover, the Brexit referendum may impact business confidence adversely and poses a risk.
However, SAP remains bullish about the immense growth prospects of its cloud business, and believes that the worldwide market for connected sensors and smart devices will be worth about €250 billion, by the end of this decade.
It has already undertaken investments worth about $2.2 billion, to expand its IoT horizons, which will likely turn out to be the fundamental catalyst for SAP’s future growth. As part of the same, SAP is acquiring Italian IoT firm – Plat.One – as part of its IoT initiative. Plat.One will enable SAP to integrate essential IoT capabilities into the SAP HANA Cloud Platform.
SAP SE Price and Consensus
SAP SE Price and Consensus | SAP SE Quote
Further, the company has earmarked a budget for further bolt-on acquisitions to fortify the IoT portfolio, going forward. The company has also announced plans to launch a new product line — SAP IoT — which will integrate huge amounts of data from things connected to the Internet, with machine learning and SAP's real-time database S/4 HANA. The IoT market is anticipated to grow to almost $11 trillion, by the year 2025, and we believe that these investments will lend a major boost to SAP as it establishes a footprint in the budding IoT space.
This apart, sustained exceptional market traction of SAP S/4 HANA – the company’s proprietary offering – is propelling the company’s growth. We believe that steady market traction of these new products will significantly bolster the company’s top-line performance, going forward. Moreover, robust growth of human capital management, customer engagement and commerce solutions are adding to the sales momentum.
However, SAP continues to struggle with weakness in some key end markets such as Latin American countries and China, which may constrain revenue growth. Further, some reports suggest that the global IT industry is likely to remain sluggish in the near term. The cloud space has also become intensely competitive.
Despite such headwinds, we believe that this Zacks Rank #3 (Hold) company has several growth drivers in place and its growth story remains impressive over the medium term.
Stocks to Consider
Some better-ranked stocks in the broader computer & technology sector Exa Corp. , Science Applications International Corporation (SAIC - Free Report) and SecureWorks Corp. (SCWX - Free Report) . While Exa Corp. sports a Zacks Rank #1 (Strong Buy), Science Applications and SecureWorks Corp. carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Exa Corporation develops, markets, sells, and supports software products, and provides professional services for simulation-driven design. The company has an excellent earnings surprise history, beating estimates each time over the trailing four quarters and has an average beat of 52.4%.
Science Applications International Corporation provides technical, engineering, and enterprise information technology services in the U.S. It boasts a remarkable average surprise of 9.2% for the trailing four quarters, beating estimates all through.
SecureWorks Corp. provides intelligence-driven information security solutions focused on protecting organizations from cyber attacks. The company has beaten estimates twice in the trailing four quarters, with an average surprise of 34.2%.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>