Following last week’s testimony from Fed Chairman Jerome Powell on monetary policy and the February jobs report showing more job creation than expected, the likelihood of the Fed raising rates has increased. Given the tech industry’s rosy long-term outlook, the fundamentally strong stocks of Fortinet (FTNT), Teradata (TDC) and Box (BOX) appear poised to deliver steady returns and could be ideal buys now. Keep reading.
The February jobs report revealed an unexpectedly high number of new jobs, raising the likelihood that the Federal Reserve will raise interest rates for an extended period of time.
Despite the market turmoil, I think Fortinet, Inc. (FTNT), Teradata Corporation (TDC), and Box, Inc. (BOX) are well prepared to achieve sustainable returns.
Although the Federal Reserve has tried to slow down the economy and reduce inflation, the latest employment report shows that the labor market remains tight and job growth is stronger than expected. In February, nonfarm payrolls increased by 311,000above the Dow Jones estimate of 225,000.
Additionally, in comments on Capitol Hill this week, Fed Chairman Jerome Powell called the job market “extremely tight” and warned that recent data show a pick-up in inflationary pressures could push up interest rates than expected.
Furthermore, the recent collapse of Silicon Valley Bank has led to concerns among investors. Markets then pushed back forecasts of any interest rate cuts, with many forecasters expecting the first sometime in 2024.
However, despite the volatility, the long-term outlook for the technology industry looks good. The software market is expected to generate revenue of $650.70 billion by 2023driven by the growing demand for Software as a Service (SaaS) solutions due to the emergence of remote and hybrid work cultures.
So fundamentally solid stocks, FTNT, TDC and BOX may be worth buying now.
Fortinet, Inc. (FTNT)
FTNT provides comprehensive, integrated and automated cybersecurity solutions internationally. It sells hardware and software licenses of FortiGate, which enable a variety of networking and security features. It also offers security subscriptions, technical support, and training services.
On March 1, 2023, FTNT announced new and improved products and services for operational technology (OT) environments as an extension of the Fortinet Security Fabric for OT. FTNT enables organizations to build a platform of integrated solutions to effectively mitigate cyber risk in OT and IT environments.
John Maddison, EVP of Products and CMO of the company, said, “The Fortinet Security Fabric for OT is designed specifically for operational technology, and we are excited to introduce additional cyber-physical security capabilities to protect these environments.”
In terms of 12-month EBIT margin, FTNT’s 21.85% is 271.5% higher than the industry average of 5.88%. The net profit margin of 19.41% over 12 months is 565.3% higher than the industry average of 2.92%. The 24.02% trailing 12-month leveraged FCF margin is 255.8% higher than the industry average of 6.75%.
During the fiscal fourth quarter ended December 31, 2022, FTNT’s total revenue increased 33.1% year over year to $1.28 billion. Non-GAAP operating income increased 52% from the same quarter last year to $417.60 million.
Non-GAAP net income attributable to FTNT and non-GAAP net income per share attributable to FTNT were $349.70 million and $0.44, up 69.9% and 76%, respectively compared to the same quarter last year.
Street expects FTNT revenue to reach $1.20 billion for the fiscal first quarter ending March 2023, up 25.9% year-over-year. Earnings per share are expected to increase 52.9% year-over-year to $0.29. The company has an impressive earnings history, having beaten consensus earnings per share estimates in each of the following four quarters.
The stock has gained 21.2% year-to-date to close out the last trading session at $59.27.
FTNTs POWR ratings reflect the promising prospects. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR ratings are calculated by considering 118 different factors, with each factor optimally weighted.
It has an A grade for quality and a B grade for growth and sentiment. The stock is number 3 out of 22 stocks in the Software – Security industry.
click here to see FTNT’s other ratings for Value, Momentum, and Stability.
Teradata Corporation (TDC)
TDC provides a connected multi-cloud data platform for business analytics to various industries, including automotive, energy and natural resources, financial services, government, healthcare, manufacturing, retail and telco.
On March 8, TDC announced the integration and general availability of TDC VantageCloud, its complete cloud analytics and data platform, with Microsoft Azure Machine Learning (Azure ML).
VantageCloud provides scalability, openness, and industry-leading analytics through ClearScape Analytics™, while Azure ML simplifies and accelerates the ML lifecycle. The company is constantly improving its capabilities to better serve customers.
TDC’s 24.13% trailing 12-month leverage FCF margin is 258.3% higher than the industry average of 6.73%. In terms of the 12-month ROTC, the stock’s 7.54% is 134.3% higher than the industry average of 3.22%. The 12-month gross profit margin of 60.67% is 24.1% higher than the industry average of 48.89%.
During the fiscal fourth quarter ended December 31, 2022, TDC’s annual recurring public cloud revenue grew 76.7% year over year to $357 million. Cash flow from operating activities grew 35.8% year-over-year to $129 million, while free cash flow increased 41.2% from the same quarter last year to $120 million. In addition, the company reported non-GAAP earnings per share of $0.35.
Analysts expect TDC’s fiscal year 2023 revenue to grow 1.5% year over year to $1.82 billion. Earnings per share are expected to grow 20.4% year over year to $1.97 in the current year. The company also beat consensus estimates of earnings per share in each of the next four quarters, which is remarkable.
Shares of TDC are up 14.3% over the past six months to close out the last trading session at $37.01.
It’s no surprise that TDC has an overall rating of B, which equates to a Buy in our POWR Ratings system.
TDC has an A-class in value and quality. Within the 81 stock Technology – Services industry ranks TDC at number 10.
In addition to the POWR ratings just highlighted, you can see TDC’s growth, momentum, stability, and sentiment ratings here.
Box, Inc. (BOX)
BOX provides a cloud-based content management platform that enables organizations of all sizes to manage and share their content anywhere, on any device.
The company’s Software-as-a-Service platform enables users to collaborate on content, automate content-driven business processes, develop custom applications, and implement data protection, security, and compliance features.
BOX’s FCF margin of 30.33% with leverage after 12 months is 349.4% higher than the industry average of 6.75%. In terms of 12-month gross profit margin, the share’s 74.51% is 52.3% higher than the industry average of 48.94%. It is 0.76x at 12 months asset turnover rate is 25.4% higher than the industry average of 0.61x.
BOX revenue increased 9.9% year over year to $256.48 million in the fiscal fourth quarter ended January 31, 2023. The company’s non-GAAP gross profit increased 14.9% year over year to $201 .26 million, while non-GAAP operating income increased 37.3% year over year to $66.56 million.
The company’s non-GAAP net income attributable to common stockholders increased 52.7% year over year to $56.29 million, and non-GAAP net EPS attributable to common stockholders increased 54.2% year-over-year annualized to $0.37.
BOX earnings per share and revenue for the fiscal first quarter ending April 2023 are expected to grow 18.4% and 4.6% year over year to $0.27 and $249.29 million, respectively. It also beat consensus estimates for earnings per share in three of the last four quarters.
The stock is up 5.6% over the past nine months to close out its last trading session at $25.48.
BOX’s strong fundamentals are reflected in its POWR ratings. The stock has an overall rating of A, which equates to a strong buy in our proprietary rating system.
It has an A grade for growth and quality and a B for value. It is number 5 in the Technology – Services sector.
To access BOX’s additional ratings for Momentum, Stability, and Sentiment, click here.
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FTNT shares were unchanged during premarket trading on Tuesday. Year-to-date, FTNT has gained 21.23%, versus a 0.77% gain in the benchmark S&P 500 index over the same period.
About the author: Kritika Sarmah
Her interest in risky instruments and passion for writing turned Kritika into an analyst and financial journalist. She received her bachelor’s degree in commerce and is currently attending the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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