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Bull of the Day: Avid Technology (AVID)

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Is it glass half empty, or half full, for Avid Technology, Inc. (AVID - Free Report) during the coronavirus crisis? This Zacks Rank #1 (Strong Buy) is seeing increased business in one division, but a slowdown in others.

Avid operates a media platform with comprehensive tools and workflow solutions to create, distribute and monetize media, including feature films, popular televisions shows, news programs, televised sporting events and music recordings and concerts.

Avid’s industry-leading solutions include Media Composer®, Pro Tools®, Avid NEXIS®, MediaCentral®, iNEWS®, AirSpeed®, Sibelius®, Avid VENUE™, Avid FastServe®™, Maestro™, and PlayMaker™.

Record Growth in New Paid Subscriptions in Q1

On Apr 7, Avid released a business update regarding the impacts of COVID-19 on its business.

It revised first quarter revenue guidance to be slightly above the prior guidance issued on Mar 7, to a range between $44.5 million and $46 million as it saw record growth in the quarter in terms of net new cloud-enabled software subscriptions.

Avid, however, did withdraw its full year guidance due to the coronavirus impacts.

Where the glass was half full was that Avid's customers include many leading television broadcast networks and stations around the globe and its solutions are relied upon to deliver the news and other essential programming.

That included the signing of a new, significant multi-million dollar cloud services agreement with a major media company to enable production with remote workers, including those working-from-home.

Working-from-home has become key for every media company during the coronavirus shutdown.

Recurring revenue, including subscription, was 62% of total revenue in 2019.

But the non-recurring portion of the company's business was hit due to the economic shutdown, including the postponement or cancellation of many music festivals and major sporting events along with the suspension of television and movie production.

Those cancellations negatively impacted the company's product sales.

Cash on Hand?

This is a small-cap company with a market cap of just $264 million.

But it had $81 million cash on hand as of the end of the first quarter, on Mar 31, 2020, which it considered to be "sufficient near-term liquidity" to manage through the impacts.

Avid was also aggressively reducing its cost structure and managing cash flow.

Earnings Still on the Rise

The reason Avid has maintained its Zacks Rank of #1 (Strong Buy) is because the analysts haven't cut the earnings estimates for 2020 or 2021 in the last 90 days.

Just the reverse.

2 estimates were raised for 2020 in the last 60 days, pushing the Zacks Consensus up to $0.86 from $0.81.

That is earnings growth of 68.6% as the company only earned $0.51 in 2019.

Analysts are still bullish on 2021 as well with 1 estimate being raised in the last 60 days which pushed the Zacks Consensus up to $1.10 from $0.95.

That's another 28.5% earnings growth.

Can these numbers still be achieved even with the COVID-19 impacts?

Only time will tell.

Shares Are Cheap

Like many stocks in 2020, Avid has sunk 29% year-to-date.

It's now trading at just 7.1x forward earnings.

Avid is in the hot computer software industry and is only one of two Zacks Rank #1 (Strong Buy). The other is Smith Micro Software (SMSI - Free Report) .

Oracle (ORCL - Free Report) and Citrix Systems (CTXS - Free Report) , Zacks Rank #2 (Buys), are two of the large caps in the industry.

Avid will report first quarter earnings on May 7.

For investors looking for a software company where the earnings estimates are, so far, holding up, then Avid should be on the short list.

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