Software stocks have witnessed a solid earnings season so far, benefiting from a resilient technology sector despite coronavirus-led disruptions. The strength primarily stems from the ongoing digital transformation and solid demand for remote working and learning.
The software space displayed its flexibility and earnings power through solid performances by leaders like Microsoft (MSFT - Free Report) , Citrix (CTXS - Free Report) and PayPal (PYPL - Free Report) .
Microsoft’s fourth-quarter fiscal 2020 results benefited from momentum in Azure and impressive Teams user growth led by work-from-home, online learning wave and tele healthcare trends.
Citrix’s second-quarter 2020 results showed solid adoption of unified workspace solutions driven by coronavirus crisis-induced demand for secure work-from-home solutions. Moreover, solid adoption of subscription-based services and hybrid cloud offerings aided growth.
Meanwhile, digital and contactless payments also gained significant traction amid the coronavirus outbreak. Internet-based payment providers like PayPal and Square (SQ - Free Report) benefited from this trend.
Growing total payment volume (TPV) on increasing net new active accounts along with strong performance delivered by Venmo and merchant services contributed to the year-over-year top-line growth for PayPal.
Square banked on strong Cash App engagement and its expanding active customer base. Additionally, strong adoption of Cash Card benefited the results. Square’s strengthening momentum in online channels and growing card-not-present GPV are expected to remain tailwinds.
Moreover, Alteryx’s strong second-quarter results reflected continuing demand for analytics automation. The company ended the second quarter with 6,714 customers, up 27.2% year over year.
Meanwhile, the shelter-in-place directives affected small businesses, consequently weighing on top-line performance of companies like Intuit. Moreover, higher levels of scrutiny on spending across all sectors resulted in longer sales cycles and smaller deal sizes.
Nevertheless, software companies are expected to continue benefiting from the rapid adoption of cloud computing, AI, IoT, cloud-based gaming, wearables and drones.
The work-from-home and online learning wave is anticipated to remain a key driver. Moreover, the rising preference for software supporting online gaming, music and video-streaming services is a major plus.
How to Make the Right Pick?
With the presence of several industry participants, finding the right software stocks with the potential to beat on earnings can be daunting. Our proprietary methodology, however, makes this task fairly simple.
You could narrow down your choices by looking at stocks that have the perfect combination of two key elements: a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP is our proprietary methodology for determining stocks that have maximum chances of beating estimates at their next earnings announcement. It is the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.
Our research shows that for stocks with this favorable mix of ingredients, the odds of a positive earnings surprise are as high as 70%.
Given below are three software stocks that have a favorable combination to beat on earnings this reporting cycle:
Luxembourg-based Globant S.A. (GLOB - Free Report) is set to report second-quarter 2020 results on Aug 13. The company has an Earnings ESP of +3.73% and a Zacks Rank #3.
The Zacks Consensus Estimate for earnings has declined by a penny to 48 cents per share over the past 30 days.
San Rafael, CA-based Autodesk (ADSK - Free Report) has an Earnings ESP of +4.44% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.
The company is scheduled to report second-quarter fiscal 2021 results on Aug 25. The consensus estimate for earnings has stayed at 90 cents per share over the past 30 days.
Palo Alto, CA-based Bill.com Holdings (BILL - Free Report) is scheduled to report fourth-quarter fiscal 2020 results on Aug 27.
The company has a Zacks Rank of 3 and an Earnings ESP of +10.45%.
The Zacks Consensus Estimate has been steady at a loss of 11 cents per share over the past month.
Zacks’ Single Best Pick to Double
From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.
With users in 180 countries and soaring revenues, it’s set to thrive on remote working long after the pandemic ends. No wonder it recently offered a stunning $600 million stock buy-back plan.
The sky’s the limit for this emerging tech giant. And the earlier you get in, the greater your potential gain.
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