No doubt, Wall Street did not like Fed Chairman Jerome Powell’s Jackson Hole speech. Markets tumbled after Powell stressed the central bank is committed to taming inflation and will implement another 75 basis point hike if that’s what it takes to get the job done.
The markets may have thrown the toys out of the pram, but while aware of a bearish scenario, Goldman Sachs chief economist Jan Hatzius isn’t overly concerned, preferring to focus on Powell’s less aggressive comment.
“We continue to expect the FOMC to slow the pace from here, achieving a 50bp hike in September and 25bp in November and December, with a final 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 incoming data and the evolving outlook,” the economist explained. “We see risks to both the near-term pace and our final rate forecast to be tilted to the upside.”
Upside is definitely on the menu for a pair of stocks Goldman Sachs is bullish right now – firm analyst Kash Rangan has identified two names that he believes have at least 100% growth on the menu for the coming months. We used the TipRanks platform to find out how other Wall Street experts think the next year will play out for these stocks.
The first Goldman pick we’ll look at is Splunk, a big data analytics company. Splunk gives businesses the tools to get insights from massive amounts of data. Data can be used to inform business decisions and keep operations running smoothly. The company is a recognized leader in IT operations and security, has an installed base of more than 20,000 customers, and has a diversified technology and strong track record of innovation.
All of that may be true, but Splunk hasn’t been immune to the economic downturn, as seen when the company recently delivered FQ2 (July quarter) earnings.
That’s not to say the show itself was dumb. The company’s revenue rose 32% year over year to $798.75 million, beating analysts’ expectations of $747.7 million. EPS of $0.09 also fared much better than the $0.35 loss per share Wall Street was predicting.
However, shares took a hit in the post-earnings session due to 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 a previous forecast of $3.9 billion. Further fueling sentiment, the company now sees this year’s cloud annual recurring revenue reaching $1.8 billion, also below its previous outlook of $2 billion.
Investors were quick to show their frustration, which Goldman’s Kash Rangan believes is “valid.” However, the reduced outlook does not change the long-term position 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 coming out of COVID. Additionally, Splunk is an attractive asset with a unique and strategic value proposition,” Rangan said.
“We remain positive on the long-term upside as the company successfully navigates its transition to the cloud under the direction of the new CEO. Additionally, the rule of 40 (revenue growth + free cash flow margin) approach of 23 could take the stock into higher valuation territory,” Rangan added.
These comments support Rangan’s Buy rating, while the $200 price target leaves room for one-year gains of 114%. (To follow Rangan’s history, Click here)
Splunk is getting a lot of coverage on Wall Street. In the last 3 months there have been 27 analyst ratings, with a tilt of 18 to 9 in favor of Buy over Hold, all resulting in a consensus rating of Moderate Buy. Going by the price target of $131.79, the shares are expected to gain ~41% in the coming months. (See Splunk stock forecast on TipRanks)
In the field of cloud-based customer relationship management software, Salesforce is a market leader, creating and developing its products for enterprises. Its product portfolio spans sales, marketing, analytics, artificial intelligence, e-commerce, customer applications, integration and collaboration. In fact, it covers practically all aspects of the ongoing trend of digital transformation. According to the company, TAM (total addressable market) for its combined businesses by FY26 should reach $284 billion.
Salesforce reportedly delivered another strong set of results in its recently released second quarter fiscal 2023 (July quarter) report.
Revenue came in at $7.72 billion, a 22% improvement compared to the same period last year, while also beating the consensus estimate of $7.69 billion. The company also exceeded expectations on the bottom line, as adj. EPS of $1.19 came in ahead of the Street’s call for $1.02 per share.
However, despite strong headline metrics, the report failed to please investors. Like many others in the current environment, Salesforce had to tame expectations for the rest of the year. The company lowered its full-year revenue guidance to a range between $30.9 billion and $31 billion. The company had previously guided for revenue of $31.7 billion to $31.8 billion.
While stocks trended south in the post-earnings session, Goldman’s Rangan believes the reaction was unfounded and sees plenty of reason to remain bullish.
“Salesforce remains in a position to capitalize on a number of secular trends driving growth in 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 strive to form more holistic views of their customers. We see continued room for improvement in the unit’s financials, as the company’s large installed base and extensive portfolio across multiple product categories position the company to expand share of wallet in customers’ overall IT budgets.”
To that end, Rangan rates CRM a Buy along with a price target of $320. What’s in it for investors? Up from a solid 100%.
Tech stocks tend to attract a lot of attention, and Salesforce is no exception – the stock has 35 analyst reviews listed, including 30 Buys versus just 4 Holds and 1 Sell to give the company a strong consensus buy recommendation. While the average target isn’t as bullish as Rangan’s, at $227.67, investors could see returns of 42% in a year. (See Salesforce stock forecast at TipRanks)
To find good ideas for trading stocks at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that brings together all of TipRanks’ stock information.
Disclaimer: The views 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.