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Here's Why Splunk (SPLK) Appears to be a Smart Investment Pick

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Shares of Splunk Inc. (SPLK - Free Report) have risen 9% over the past year, driven by healthy revenues on the back of a flexible business model and a quick time-to-market schedule to meet clients’ evolving needs. Earnings estimates for the current fiscal have increased 87.7% over the past 90 days, while that for the next fiscal is up 142%, implying solid inherent growth potential. With healthy fundamentals, this Zacks Rank #2 (Buy) software solutions provider appears to be a solid investment option at the moment. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Investment Research
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Growth Drivers

San Francisco, CA-based Splunk provides software solutions that enable enterprises to gain real-time operational intelligence by harnessing the value of their data. The company’s offerings enable users to investigate, monitor, analyze and act on machine data and big data, irrespective of format or source, and helps in operational decision making. The company’s software has a broad range of applications, including security analytics, business analytics and IT operations. The valuable insight into machine and big data is allowing users/enterprises to improve service levels, reduce operational costs, mitigate security risks and maintain compliance. This has enabled the company to strengthen its market position.

Splunk’s software can be deployed in a wide variety of computing environments, from a single laptop to large globally distributed data centers as well as public, private and hybrid cloud environments. The company’s top line is benefiting from the high demand for its cloud solutions. Splunk’s ES (Enterprise Security) solutions also hold promise. Users leverage ES to centralize security management on a single platform and better handle the big data scale of their security operations center. It also benefits from the ongoing security threats and information and event management replacement cycle. Further, the company’s integration with Amazon Web Services (AWS) security Hub to help customers accelerate detection, investigation and response to potential threats within their AWS security environment is likely to be a key catalyst in the long haul.

In addition, Splunk’s aggressive acquisition strategy has played a pivotal part in developing its business over the last couple of years. The SignalFx acquisition has enabled it to emerge as a leader in cloud monitoring and Application Performance Monitoring for firms transitioning to the cloud. The VictorOps buyout helps it address the needs of DevOps, which is a rapidly growing domain of software engineering. The acquisition of Phantom Cyber aided in the addition of security orchestration, automation and response to Splunk’s portfolio. The buyout of Rocana has strengthened the company’s machine data platform. Splunk is expected to continue pursuing acquisitions in order to expand its portfolio and increase market share over the long term.

The company’s business transition from perpetual licenses to subscription or renewable model is expected to benefit it in the long run. Splunk has been witnessing an increase in the number of renewable terms contracts, which is a tailwind. Additionally, Cloud Annual Recurring Revenues (ARR) were $1.34 billion, up 65% in fourth-quarter fiscal 2022. The company ended the quarter with 317 customers generating Cloud ARR greater than $1 million.

The stock delivered an earnings surprise of 115.3%, on average, in the trailing four quarters and has a long-term earnings growth expectation of 30%.

Other Key Picks

Viavi Solutions Inc. (VIAV - Free Report) , carrying a Zacks Rank #2, is another solid pick for investors in the broader industry classification. It delivered a modest earnings surprise of 15.6%, on average, in the trailing four quarters. Earnings estimates for the current year for the stock have moved up 10.8% since March 2021, while that for the next year is up 9.2%.

Viavi boasts a comprehensive product portfolio that offers end-to-end network visibility and analytics that help build, test, certify, maintain and optimize complex physical and virtual networks. Its wireless and fiber test solutions are in the early stages of a multi-year investment cycle fueled by the transition of OEMs and service providers to superfast 5G networks. Viavi expects growth to be driven by the secular demand for 5G wireless, fiber and 3D sensing.

TESSCO Technologies Incorporated (TESS - Free Report) , carries a Zacks Rank #2. It delivered an earnings surprise of 55.4%, on average, in the trailing four quarters.

Earnings estimates for TESSCO for the current year have moved up 28.8% since March 2021. It offers products to the industry’s top manufacturers in mobile communications, Wi-Fi, wireless backhaul and related products. With over three decades of profound experience, TESSCO delivers complete end-to-end solutions to the wireless industry.

KVH Industries, Inc. (KVHI - Free Report) , a Zacks Rank #2 stock, delivered an earnings surprise of 20%, on average, in the trailing four quarters.

Despite global supply chain disruptions, KVH Industries is driving growth and margin expansion through new product introduction and subscriber migration to High-Throughput Satellites. The company aims to make decisive inroads into the still-nascent autonomous transportation markets with a strong balance sheet position and zero debt. If KVH Industries manages to effectively mitigate supply chain woes, there could be further room for cash flow expansion.