Back to top

Image: Bigstock

5 Software Stocks Poised to Top Estimates This Earnings Season

Read MoreHide Full Article

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 growing proliferation of SaaS-based services, the rapid migration to cloud platforms, increased spending by enterprises on software procurement, solid adoption of video-conferencing software and rising user penetration of online payment solutions are likely to have remained major tailwinds for software companies.

The software space has so far displayed its flexibility and earnings power through solid performances by tech giants like Microsoft (MSFT - Free Report) and PayPal (PYPL - Free Report) .

Microsoft’s second-quarter fiscal 2021 results benefited from momentum in Azure and impressive Teams user growth led by work-from-home trend, solid uptake of new Xbox consoles, online learning wave and tele healthcare trends.

In addition to this, Aspen Technology, which reported second-quarter fiscal 2021 results, benefited from solid growth in its bookings.

Blackbaud also benefited from the rapid migration of enterprises to cloud amid the pandemic-induced digitization in fourth-quarter 2020.

Meanwhile, digital and contactless payments also gained significant traction amid the coronavirus outbreak, which has benefited Internet-based payment providers like PayPal.

PayPal’s strong fourth-quarter 2020 results were driven by solid momentum across Venmo and strong customer engagement that led to a spike in its new active accounts.

Moreover, Alteryx’s fourth-quarter results reflected continuing demand for analytics automation. The company ended the fourth quarter with 7,083 customers, up 16% year over year.

Software Stocks’ Prospects

The spike in the adoption of cloud-based services, the increasing proliferation of IoT and AR/VR devices, and the accelerated deployment of 5G are expected to have aided the performances of software stocks this earnings season.

Strong momentum across enterprise collaboration software, remote desktop tools, natural language processing tool, time tracking tools and cybersecurity software is expected to have hugely favored the software industry this earnings season.

Additionally, the growing proliferation of AI-powered voice recognition, telemedicine, learning management, infrastructure monitoring and business spend management software is expected to have benefited industry players in the quarter under review.

Further, enterprise workspace solutions, enterprise communication platforms, and online education portals, which have been high in demand throughout 2020, are likely to have contributed well.

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 positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). 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 in 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%.

Best Bets

Given below are five software stocks that have a favorable combination to beat on earnings this reporting cycle:

Sunnyvale, CA-based CrowdStrike Holdings (CRWD - Free Report) is slated to report fourth-quarter fiscal 2021 results on Mar 16. The company presently has an Earnings ESP of +23.94% and a Zacks Rank #2. The Zacks Consensus Estimate for earnings has been revised upward by 12.5% to 9 cents per share over the past 30 days.

CrowdStrike Holdings Inc. Price and EPS Surprise

CrowdStrike Holdings Inc. Price and EPS Surprise

CrowdStrike Holdings Inc. price-eps-surprise | CrowdStrike Holdings Inc. Quote

Pleasanton, CA-based Workday (WDAY - Free Report) is scheduled to report fourth-quarter fiscal 2021 results on Feb 25. The company currently has an Earnings ESP of +1.21% and a Zacks Rank #2. The Zacks Consensus Estimate for earnings has been stable at 55 cents per share in the past 30 days.

Workday, Inc. Price and EPS Surprise

Workday, Inc. Price and EPS Surprise

Workday, Inc. price-eps-surprise | Workday, Inc. Quote

San Rafael, CA-based Autodesk (ADSK - Free Report) has an Earnings ESP of +2.29% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The company is scheduled to report fourth-quarter fiscal 2021 results on Feb 25. The consensus estimate for earnings has remained steady at $1.07 per share over the past 30 days.

Autodesk, Inc. Price and EPS Surprise

Autodesk, Inc. Price and EPS Surprise

Autodesk, Inc. price-eps-surprise | Autodesk, Inc. Quote

Canonsburg, PA-based ANSYS Inc. (ANSS - Free Report) is scheduled to report fourth-quarter 2020 numbers on Feb 25. The company currently has an Earnings ESP of +1.66% and a Zacks Rank #3. The Zacks Consensus Estimate for earnings has been steady at $2.51 per share in the past 30 days.

ANSYS, Inc. Price and EPS Surprise

ANSYS, Inc. Price and EPS Surprise

ANSYS, Inc. price-eps-surprise | ANSYS, Inc. Quote

Holon, Israel-based, Sapiens International Corporation (SPNS - Free Report) is scheduled to report fourth-quarter 2020 numbers on Feb 25. The company currently has an Earnings ESP of +1.96% and a Zacks Rank #3. The Zacks Consensus Estimate for earnings has been steady at 26 cents per share in the past 30 days.

Breakout Biotech Stocks with Triple-Digit Profit Potential

The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.

Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.

See these 7 breakthrough stocks now>>