Nvidia (NVDA) stock has been on the rampage since the turn of the year, barely pausing to take a break. The macro environment and stay-at-home measures have played to Nvidia’s strengths, and with year-to-date gains of a 35%, expectations are high heading into next Thursday's earnings.
According to 5-star Merrill lynch analyst Vivek Arya, the company’s recent acquisitions will “add new growth legs,” to its already wide-reaching limbs.
Last week, following Chinese regulatory approval, Nvidia finally closed the long awaited Mellanox acquisition – paying $6.9 billion for the Israeli data center specialist.
“Mellanox’s networking capabilities (Spectrum5 switch), and its dominant 59% share in supercomputing connectivity (Infinband) also well complement NVDA’s recent forays into 5G edge compute, and supercomputing/HPC acceleration,” Arya noted.
Last week was a busy one at Nvidia HQ, as the company announced it planned to add another name to the family. The company intends to acquire Cumulus – a provider of open source network tools. Arya believes that, together, the new additions could provide 10% accretion in the near term (FY22/CY21E). But, looking further ahead, the new purchases could potentially increase data center sales from the current 30-35% up to 45-50% of Nvidia’s total revenue, eventually pushing CY22/23 pf-EPS to the $15 region.
Moreover, the additions should further increase Nvidia’s data center market share, moving it closer to becoming a “compute & networking powerhouse.”
Arya said, “While the company has been a pioneer and leader in acceleration processing layer, Mellanox (networking, data pre-processing via smart network interface-cards or NICs) and Cumulus (Linux-based open source networking tools) add critical/timely complementary capabilities, potentially challenging leaders Broadcom, Intel and traditional hardware and networking OEMs.”
Accordingly, Arya reiterated a Buy rating on NVDA shares, along with a price objective of $360. Investors could be pocketing gains in the shape of 16%, should the target be met over the next 12 months. (To watch Arya’s track record, click here)
Looking at the consensus breakdown, Nvidia’s Strong Buy consensus rating is based on 26 Buys, 4 Holds and 1 Sell. Interestingly, though, the average price target of $317.57, represents a modest upside of 2%. Nvidia’s share gains appears to have caught the Street off guard, so expect some analysts to revise their Nvidia models in the near term. (See Nvidia stock analysis on TipRanks)
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The market has proven itself difficult to predict at the best of times, yet the sustained rally since mid-March has left many perplexed. As the bad news on Main Street has kept piling up, Wall Street has nonchalantly marched on, seemingly oblivious to the pandemic’s destructive effect and buoyed by the stimulus measures.
But perplexing market moves are nothing new. Which brings us to Roku (ROKU). The OTT leader delivered a solid quarterly report last week, and promptly tanked in the market, as shares dropped by 8% in Friday’s session.
At first glance, this may seem odd. Roku reported revenue of $321 million, up by 55.3% year-over-year and beating the estimates by $11.77million. Q1 GAAP EPS of -$0.45 met Street expectations, while active accounts increased year-over-year by 36.8% to 39.8 million. Unsurprisingly, in these stay at home times, engagement soared to 13.2 billion hours, up by 49% compared to the same period last year.
So where was the problem? Maybe problem is the wrong word. But you could argue the good news was already priced in, as Roku announced preliminary results in mid-April, and therefore Wall Street knew what was coming. Secondly, it should be noted Roku stock has exploded since the mid-March lows. The majority of the market has surged too, but not many increased by 115% since then, so, it is possible some trading profits were locked in.
Another explanation for the sell-off might be down to Roku’s assertion that ad spend – a major ARPU (average revenue per user) growth driver - is expected to be slashed amid the economic uncertainty. The trend was already in place in the quarter as ad cancellations came in fast and furious during late March through mid-April.
Nevertheless, the pullback hasn’t dampened Rosenblatt analyst Mark Zgutowicz’ views on Roku’s prospects. As it happens, following the earnings report, the 5-star analyst reiterated a Buy and increased the price target from $110 to $145. Expect upside of 23%, should the target be met in the months ahead. (To watch Zgutowicz’ track record, click here)
Zgutowicz commented, “While macro and subsequent ad market uncertainties look to be with us for some time, we remain focused on long-term potential silver linings to pandemic disruptions, including ecommerce and OTT video. Roku’s dominant US brand/household positioning in OTT, and early innings globally, make it hard to bet against, even with acknowledged less than perfect financial model transparencies. OTT video streaming and importantly Roku’s market position, should come out the other end of this stronger.”
All in all, the Street keeps a positive, though more measured view. 7 Buys, 4 Holds and 2 Sells coalesce to a Moderate Buy consensus rating. The average price target is $128.33 and implies miniscule upside of 9%. (See Roku stock analysis on TipRanks)
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What does it take to be the best? On Wall Street, it takes a sharp eye for stocks and a clear view of what makes a winning investment – and not every analyst has that.
Glenn Greene, writing on the technology sector for Oppenheimer, is one of the select few analysts to rate five stars from TipRanks. Ranked #3 overall, out of 6,546 rated analysts, Greene’s recommendations have a success rate of 81%. Even better, for the investors who follow him, Greene’s calls have brought an average return of 20.4%.
With this in mind, we wanted to take a closer look at the 5-star analyst’s top picks in the business services sector. These are companies that provide day-to-day financial and payment processing services in the B2B market. While not household names, they are vital players in their niche. Let’s see why Greene sees them as compelling components for your portfolio.
WEX (WEX)
We’ll start with WEX, an interesting company that provides payment solutions for corporate accounts. WEX started out in the 1980s as a fleet card provider, offering gasoline payment processing for corporate motor pools, and has since expanded to offer a wider range of payment processing and information management for commercial and government vehicle fleets.
Prior to the COVID-19 outbreak, WEX was having a good year. The company saw earnings grow through the first three quarters of 2019, and finished the year with a $2.39 EPS in Q4. The wide-ranging, large-scale economic shutdowns put in place to help fight the pandemic hit WEX hard, however. With so many people under shelter-at-home orders, vehicle traffic declined sharply, as did the need to refuel, service, and maintain those vehicles. WEX reported just $1.62 in Q1 earnings, missing the forecast by over 10% and falling 32% sequentially. The bright spot was the year-over-year change; EPS was up 5.8% from Q1 2019.
However, Glenn Greene believes that WEX remains in a solid position, with positive long-term prospects. The analyst noted, “WEX continues to see strong momentum in its US Health businesses, which realized a minimal impact from the pandemic. WEX also instituted near-term cost-cutting measures that should provide $60–65M of FY20 expense savings… We remain optimistic regarding WEX's diversified growth potential LT, however, are cautious regarding recent NT headwinds.”
To this end, Greene maintained his Buy rating on WEX shares. His $175 price target suggests a robust one-year upside of 51% to the stock.
Overall, WEX shares have a Moderate Buy rating from the analyst consensus. This is based on 11 recent reviews, which break down to 6 Buy and 5 Hold. Shares are priced at $116.09, and the average price target, $174.90, is in line with Greene’s, indicating room for 51% growth. (See WEX stock analysis on TipRanks)
Fiserv, Inc. (FISV)
Next on today’s list, Fiserv, is a provider of financial services technology for banks, credit unions, leasing and finance companies, retailers, and securities brokers and dealers. Fiserv has been in business since 1984, and reported over $10 billion in revenues for fiscal year 2019.
On May 7, Fiserv reported two items of great interest to investors. First, the company announced that long-time CEO Jeffery Yabuki will step down as of July 1. He will be succeeded by COO Frank Bisignano. In the second news item that day, Fiserv reported Q1 results. At the top line, GAAP revenues increased 151% to $3.77 billion, and GAAP earnings grew by 2% to 57 cents per share. The balance sheet was solid -- Fiserv reported $888 million in net cash for the quarter, compared to $373 million in Q1 2019.
Greene’s assessment of FISV is simple: he rates the stock as a Buy, and believes it has a clear path forward, stating, “FISV has seen steady weekly volume improvement since late March and into May. For perspective, volume declines approximated 30% in late March and have gradually recovered to low double-digit declines; notably better than peer trends, perhaps due to vertical or geographic volume mix. Accordingly, we expect significant but bottoming revenue/profitability pressure in 2Q20 with gradual improvement in subsequent quarters.”
Along with this Buy rating, Greene give FISV a price target of $130, indicating his confidence in a solid 31.5% upside potential.
Fiserv has no fewer than 19 recent analyst reviews, including an impressive 17 Buy ratings against just 2 Holds, and making the analyst consensus a Strong Buy. The average price target, $122.37, implies a 24% premium from the current trading price of $98.86. (See Fiserv stock analysis on TipRanks)
FleetCor Technologies (FLT)
The last stock on today’s list is FleetCor. FleetCor is a major provider of fuel cards and workforce payment services throughout the developed world, with major clients in the US, the Netherlands, Belgium, and Germany. FleetCor’s client list includes government entities, petroleum companies, and business commercial fleets.
For Q1 2020, FLT showed mixed results. Revenues grew, gaining 6% year-over-year to reach $661.1 million. At the same time, net income fell by 15% yoy to $147.1 million. Due to the pandemic, management withdrew previously published full-year 2020 guidance, citing increased uncertainty in future business activity. Shares have slipped 13% since the earnings release.
In his review of FLT, Greene maintained his Buy rating, along with a $280 price target that implies a strong upside of 30%. Greene comments, “Notwithstanding near-term COVID-19-related headwinds, FLT remains well positioned to re-capture growth as end client volumes and activity normalize. Additionally, FLT maintains significant capital deployment flexibility, which we suspect could be utilized as we see some evidence of broader growth trends returning.”
The Moderate Buy analyst consensus rating on FLT is based on 13 reviews, including 7 Buys and 6 Holds. The stock is selling for $214.75, and the $270 average price target indicates it has room for 25% upside growth over the next 12 months. (See FleetCor stock analysis on TipRanks)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.