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Bull of the Day: Elastic (ESTC)

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Elastic (ESTC - Free Report) is a $9 billion provider of a software analytics engine that specializes in big-data search capabilities. For this reason, I call Elastic "the little Google" of big data and I've chosen it for the Bull of the Day because I'm really impressed with the projected 28% revenue growth for this year and next.

Here's the company mission, in their own words...

Search is foundational to a wide variety of experiences - from finding files and documents to investigating downtime to hunting down security threats. Elastic is a search company that applies the ability to instantly find relevant information and actionable insights from any data to a diverse set of applications and use cases.

We're the company behind the Elastic Stack — that's Elasticsearch, Kibana, Beats, and Logstash. From stock quotes to Twitter streams, Apache logs to WordPress blogs, we help people explore and analyze their data differently using the power of search.


Strong Beat-and-Raise Quarter Gets Analysts Moving

Elastic finds itself among a unique group of data "engine" analytics companies like Splunk (
(SPLK - Free Report) ), Alteryx ((AYX - Free Report) ), Datadog ((DDOG - Free Report) ), and MongoDB ((MDB - Free Report) ). These big data peers all have different automation specialties and cloud business models -- from SaaS to Platform-aaS and Infrastructure-aaS -- and over 1/3 of Forbes Global 2000 corporations rely on at least two of them.

On August 26, Elastic reported their Q1 results for fiscal year 2021, which began in May. Elastic delivered Q1 adjusted EPS of 6-cents vs. the consensus (18c), for a 133% earnings beat. Q1 revenue of $128.9 million beat the top line consensus of $121M by 6.5%.

While the company still isn't expecting consistent profitability yet, the out look was stronger than expected. Elastic raised its FY21 adj. EPS view to a range of (83c)-(69c) from (98c)-(85c). And management's FY21 revenue view rose to a range of $544-$550 million from $530M-$540M, vs the consensus of $537M.

Analysts were so impressed with the report and outlook that the average price target for ESTC shares rose from $95 to $125.

RBC Capital analyst Matthew Hedberg raised his price target on Elastic to $125 from $111 citing Elastic's strong Q1 results, that exceeded expectations on revenue growth, billings, and margins. He also noted that the company outlook for Q2 looks "beatable." Hedberg also like the fact that Elastic management indicated new customer additions and gross-renewals remain "consistent with past quarters" as the company "powers through" the current environment.

Oppenheimer analyst Ittai Kidron raised the firm's price target on Elastic shares to $125 from $100 and maintained an Outperform rating following the company's "strong" July quarter results. While Kidron is cognizant of potential risks like a longer sales cycle, he is positive on the continued recovery in business activity and strong customer metrics.

Stifel Nicolaus analyst Brad Reback dramatically boosted his price target on Elastic to $125 from $84 after the company "beat across the board" to start FY21. Reback observed that management's fiscal year guidance for about 28% revenue growth appears conservative given management's commentary that business trends are continuing to stabilize. Still, the analyst keeps a Hold rating on the stock as he expects shares to trade in line with peers in coming quarters and believes that ESTC is approaching fair value.

Piper Sandler analyst Rob Owens raised the firm's price target on Elastic to $127 from $94 after seeing the company post "strong results across all metrics" as accelerating digital transformation continues to drive demand for the broader portfolio of solutions addressing critical data and security needs for customers. Owens also believes that Elastic's guidance "continues to contain a degree of conservatism," after the surprising swing to profitability in Q1 following a 60% EPS beat in Q4.

Barclays analyst Raimo Lenschow raised his price target on Elastic to $124 from $120 and maintained an Overweight rating. The analyst noted that another quarter of "superior growth above expectations and conservative guidance should convince investors that Elastic is back on track." Lenschow believes the company should "re-join the valuation levels of other high growth software assets" such as MongoDB (MDB - Free Report) .

Jefferies analyst Brent Thill raised the firm's price target on Elastic to $130 from $110, citing that the company's updated outlook remains conservative even with management calling out the extending sales cycles in the current environment. Thill sees a favorable competitive position against a large TAM (total addressable market) in the tens of billions for Elastic.

Citigroup analyst Tyler Radke raised his price target on Elastic to a Street-high $146 as he observes the company's leading metrics pointing to mid-to-high 40's year-over-year constant currency growth, which is well above the Street's mid-20's estimate. Radke further notes that while guidance and the tone of the earnings call "struck a more conservative tone than we thought necessary," it should continue to provide an "attractive set-up" for quarters to come.

Digging for the New Gold in Big Data

In the last decade, the phrase "big data" entered the business technology lexicon because it described a new type of information available to corporations who were plugged into various sources of streaming data, from the Internet and communication networks to the factory floor and IoT -- especially since storing all these bits and bytes in the cloud was becoming increasingly cost effective.

And what smart enterprises were learning was that "mining and modeling" this data deluge was becoming a competitive advantage to learn about customers, products, supply chains and their next innovation opportunities.

This is why I have been a frequent investor and trader in companies like Splunk and Alteryx because of the powerful data analytics platforms they offer enterprises in just about any industry to find and use their data, and other outside data.

One major insight from Splunk in the past year was something they called "dark data" where over half of the files being deposited on corporate servers every month is hidden in log files and unavailable without the right "mining" tools.

And these data power tools made Splunk and Alteryx the picks and shovels of the new gold rush, as I described in several article and videos like these...

Big Data Gold Rush: Harness Chaos or Be Disrupted

Dark Data: Diving Into the Abyss

Once I realized the power of these analytics engines and platforms, it convinced me to learn more about Elastic and its unique big data search engine. Thus I became a buyer in the $60s last year and continue to buy it now near $100.

Trading only 13X sales in an environment of many software stocks supporting multiples above 25X -- for growth that might be double, but is unsustainable -- Elastic is a very unique provider of big data search capabilities with steady 25%+ growth. I see buying ESTC shares in the $90s as a good long-term opportunity.

Disclosure: I own shares of ESTC and AYX for the Zacks TAZR Trader portfolio.

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