Since the onset of the global public health crisis, work- and learn-from-home conditions have amplified business’ dependence on edge computing and cloud infrastructure. Shelter-in-place orders have fueled the demand for remote project collaborations, video conferencing, online classes, gaming, and e-commerce shopping–to name a few applications–all powered by cloud computing technology.
Consequently, companies operating with software-as-a-service (SaaS) business models have thrived during the economic downturn. An SaaS business model converts traditional software licensing to subscription-based services that give flexibility to customers. The idea behind SaaS is to put software on the cloud and then enjoy recurring and predictable revenues.
The outperformance of software stocks last year is evidenced by the Invesco Dynamic Software ETF’s (PSJ) 54.3% returns versus the tech-heavy NASDAQ’s 41% gains. This is not surprising because companies are constantly looking for new ways to improve and streamline their business models.
Given this favorable backdrop, the industry’s momentum should continue this year. And we think Oracle Corporation (ORCL), EPAM Systems, Inc. (EPAM) and Ceridian HCM Holding Inc. (CDAY) are well positioned to continue gaining from this trend because they are continuously innovating.
Oracle Corporation (ORCL)
ORCL develops, hosts, and supports database and middleware software, application software, cloud infrastructure, hardware systems, and related services worldwide. It operates via four segments – Cloud services and license support, Cloud license and on-premises license, Hardware, and Services. The company has 7,300 Fusion enterprise resource planning (ERP) customers and more thann23,000 NetSuite ERP customers in the Oracle Cloud.
ORCL opened 13 additional Cloud datacenter regions in 2020 and currently operates 29 regions globally – the fastest expansion by any major cloud provider. Moreover, in October, Oracle announced the next generation of Oracle Exadata Cloud Service , which helps customers accelerate their most challenging transaction processing and data analytics projects in 29 global cloud regions
In its fiscal second quarter ended November 30, 2020, ORCL’s revenues were up 2% year-over-year to $9.8 billion. Cloud services and license support contributed 72% of the top-line, as segment revenues increased 4% to $7.1 billion. The company’s highly profitable multibillion-dollar Fusion and NetSuite Cloud ERP applications businesses grew their revenue 33% and 21%, respectively, during the quarter. Non-GAAP EPS came in at $1.06, rising 19% compared to the year-ago quarter.
ORCL has increased its already aggressive expansion plan, and now expects to have 38 Cloud regions live by mid-2021, with the recent opening of three new commercial cloud regions in Dubai, the U.K. and Chile. Hence, analysts expect ORCL’s current year revenue and EPS to grow 2.6% and 13.2%, respectively.
ORCL ended the previous year with a 24.3% gain. The stock closed yesterday’s trading session at $63.75. ORCL is up nearly 6.3% in the past month and is currently trading just 3.7% below its 52-week high of $66.20.
How does ORCL stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
B for Peer Grade
B for Industry Rank
A for Overall POWR Rating.
It is ranked #3 in the 102-stock Software – Application industry.
EPAM Systems, Inc. (EPAM)
EPAM is a leading global IT services firm that delivers product development and software engineering solutions to clients worldwide. The services and solutions EPAM provides include product research, customer experience design and prototyping, program management, and custom application development services. It also provides operation solutions, comprising integrated engineering practices and smart automation, and optimization solutions.
EPAM was recently been named the top IT services company on the 2020 Fortune 100 Fastest-Growing Companies list — for the second year in a row – climbing an impressive fifty positions to #21. In October, the company earned the Modernization of Web Applications in Microsoft (MSFT) Azure advanced specialization, a validation of a solution partner’s deep knowledge, extensive experience, and proven expertise in migrating and modernizing production web application workloads and managing app services in Azure.
EPAM delivered total revenue of $652.2 million in the third quarter, increasing $64.1 million, or 11% year-over-year, on the back of improving demand and the ongoing expansion of the company’s capabilities. The company reported 23.6% year-over-year growth in adjusted operating income to $123.3 million. Its adjusted EPS for the quarter came in at $1.65, rising 18.7% compared to the year-ago quarter.
Through its ‘Engineering DNA’ and innovative strategy, consulting, and design capabilities, EPAM works in collaboration with its customers to deliver next-gen solutions that turn complex business challenges into real business outcomes. Consequently, the company is facing robust demand for its services related to cloud utilization, especially Cloud Computing Service (C2S), which provides cloud infrastructure and related resources as a high scale, multi-tenant private IaaS service. Moreover, analysts expect EPAM’s current year revenue and EPS to grow 21.5% and 19.5%, respectively, year-over-year.
EPAM gained 68.9% in the previous year and closed yesterday’s trading session at $348.06. The stock is up nearly 7% in the past month and recently hit its 52-week high of $360.89.
EPAM’s POWR Ratings reflect a promising outlook with a “Strong Buy” rating. It also has an “A” in Trade Grade and Buy & Hold Grade, and a “B” in Peer Grade and Industry Rank. Within the Software – Application industry, it is ranked #7 of 102 stocks.
Ceridian HCM Holding Inc. (CDAY)
CDAY is a global human capital management (HCM) software company. The company’s flagship cloud HCM platform, Dayforce, provides human resources, payroll, benefits, workforce management, and talent management capabilities in a single solution. CDAY also offers Powerpay, a cloud platform that offers scalable and straightforward payroll and HR solutions.
CDAY recently partnered with RedZone Group Purchasing, an organization that offers owners and managers of arenas, stadiums, and professional sports franchises access to a nationwide group purchasing program to drive quantifiable value for the sports and entertainment industry. In October, CDAY hit a significant milestone in obtaining security clearance status from the government of Canada to provide cloud services through its HCM platform. The certification underscored CDAY’s commitment to ensuring data stored in the cloud is managed and protected to the highest standard.
CDAY reported impressive third quarter results, delivering $204.4 million in revenues. Though this implied a mere 1.1% year-over-year increase, cloud revenue (which includes both Dayforce and Powerpay) continued to grow strongly, posting a 11% year-over-year growth. CDAY added 101 net new customers during the quarter, taking the Dayforce customers live on the platform to 4,704. Its adjusted EPS came in at $0.12, relatively stable compared to the prior year.
CDAY is committed to consistently innovating its platform. The company recently extended its innovation leadership with the launch of Dayforce Benefits Intelligence. With this new solution, HR leaders can create competitive and cost-effective benefit packages, and employees can enroll in their best-fit plan through informed decisions. In line with the progress, the Street expects the company’s current year revenue and EPS to grow 14.7% and 28.3%, respectively.
CDAY closed yesterday’s trading session at $102.53 and the stock returned 57% in the previous year. CDAY has gained more than 20% in the past three months and is currently trading just 8.4% below its 52-week high of $111.93.
It is no surprise then that CDAY is rated “Strong Buy” in our POWR Ratings system. It also has an “A” for Trade Grade and Peer Grade, and a “B” in Buy & Hold Grade and Industry Rank. It is ranked #10 of 102 Software – Application stocks.
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ORCL shares were trading at $63.06 per share on Tuesday afternoon, down $0.69 (-1.08%). Year-to-date, ORCL has declined -2.52%, versus a -0.48% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More…
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