There’s no doubt, Wall Street did not like Fed Chair Jerome Powell’s Jackson Hole speech. The markets tumbled after Powell stressed the central bank is committed to taming inflation and will implement another 75bp hike if that is what is needed to get the job done.
The markets might have thrown the toys out of the pram, but while cognizant of a bearish scenario, Goldman Sachs’ chief economist Jan Hatzius is not overly concerned, preferring to focus on Powell’s less hawkish commentary.
“We continue to expect the FOMC to slow the pace from here, delivering a 50bp hike in September and 25bp hikes in November and December, for a terminal rate of 3.25-3.5%. However, additional CPI and employment reports will be available by the September meeting, and Powell stressed that the decision will ‘depend on the totality of the incoming data and the evolving outlook,’” the economist explained. “We see the risks to both the near-term pace and our terminal rate forecast as tilted to the upside.”
Upside is certainly on the menu for a pair of stocks Goldman Sachs is bullish on right now – the firm’s analyst Kash Rangan has pinpointed two names which he thinks have at least 100% growth on the menu for the coming months. We’ve used the TipRanks platform to find out how other Wall Street experts think the next year will pan out for these stocks.
The first Goldman pick we’ll look at is Splunk, a big data analytics company. Splunk provides businesses with the tools to get insights from huge troves of data. The data can be used to inform business decisions and help operations run smoothly. The company is a known leader in IT operations and security, has an installed base of more than 20,000 customers, and boasts differentiated tech and a strong track record of innovation.
All that may be true, but Splunk has not been immune to the economic downturn, as was evident when the company delivered FQ2 earnings (July quarter) recently.
That’s not to say the report itself was a dud. The company’s revenue increased by 32% year-over-year to reach $798.75 million, while beating the analysts’ expectation for $747.7 million. EPS of $0.09 also fared far better than the loss of $0.35 per share Wall Street predicted.
However, shares took a battering in the post-earnings session on account of the company’s disappointing outlook. Annual recurring revenue (ARR) – a key metric in the software space – is now expected to reach $3.65 billion this year, down from the prior forecast of $3.9 billion. Further souring sentiment, the company now sees this year’s cloud annual recurring revenue hitting $1.8 billion, also below the previous outlook of $2 billion.
Investors were quick to show their disappointment, which Goldman’s Kash Rangan believes is “valid.” However, the lowered outlook doesn’t alter the long-term thesis in any way.
“We are bullish on Splunk’s rapidly scaling cloud business, significant perpetual license and Non-Cloud ARR renewal opportunity, long-term fundamentals and enhanced value proposition exiting COVID. Moreover, Splunk is an attractive asset with a unique and strategic value proposition,” Rangan opined
“We remain positive on the long-term upside as the company successfully navigates the cloud transition under the direction of the new CEO. Furthermore, approaching the Rule of 40 (revenue growth + free cash flow margin) in FY23 could drive the stock into a higher valuation territory,” Rangan added.
These comments underpin Rangan’s Buy rating while his $200 price target makes room for one-year gains of a hefty 114%. (To watch Rangan’s track record, click here)
Splunk gets a lot of coverage on Wall Street; over the past 3 months there have been 27 analyst reviews, tilting 18 to 9 in favor of Buys over Holds, all resulting in a Moderate Buy consensus rating. Going by the $131.79 price target, the shares are expected to see ~41% growth over the following months. (See Splunk stock forecast on TipRanks)
In the sector of cloud-based customer relationship management software, Salesforce is a market leader, building and developing its products for enterprises. Its product portfolio spans across sales, marketing, analytics, artificial intelligence, e-commerce, customer applications, integration and collaboration. In fact, it practically covers all facets of the ongoing trend of digital transformation. According to the company, the TAM (total addressable market) for its combined businesses by FY26 should reach $284 billion.
As has become de rigueur, Salesforce delivered another strong set of results in its recently released second quarter fiscal 2023 report (July quarter).
Revenue clocked in at $7.72 billion, amounting to a 22% improvement vs. the same period last year, while also trumping the consensus estimate of $7.69 billion. The company beat expectations on the bottom-line too, as adj. EPS of $1.19 came in ahead of the Street’s call for $1.02 per share.
However, despite the strong headline metrics, the report failed to please investors; like many others in the current environment, Salesforce has had to tame expectations for the rest of the year. The company reduced its full-year revenue forecast to the range between $30.9 billion and $31 billion. Previously, the company has guided for revenue between $31.7 billion to $31.8 billion.
While shares trended south in the post-earnings session, Goldman’s Rangan thinks the reaction was unmerited and he sees plenty of reasons to stay bullish.
“Salesforce remains positioned to capitalize on a number of secular trends driving growth within the company’s large and expanding TAM,” the analyst wrote. “In our view, the company remains broadly positioned to capitalize on digital transformation as companies look to form more holistic views of their customers. We see continued room for improvement in unit economics, as the company’s large installed base and expansive portfolio across multiple product categories position the company to expand share of wallet within customers’ overall IT budgets.”
To this end, Rangan rates CRM a Buy along with a $320 price target. What’s in it for investors? Upside of a sturdy 100%.
Tech stocks tend to attract a lot of attention, and Salesforce is no exception – the stock has 35 analyst reviews on record, and they include 30 Buys against just 4 Holds and 1 Sell to give the company its Strong Buy consensus recommendation. While the average target is not quite as upbeat as Rangan’s, at $227.67, investors could be sitting on returns of 42% in a year’s time. (See Salesforce stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.