Salesforce.com, inc. (CRM) and Symantec Corporation (SYMC) are two software and programming companies, with strong EPS growth in the past five years. Both stocks had received recent updates from analysts and will be analyzed fundamentally and technically. Investing strategies will also be presented.
CRM was up 1.93% and closed at $176.06 on March 22, 2013. CRM had been trading in the range of $120.18-$187.94 in the past 52 weeks. CRM has a market cap of $25.78B with a beta of 1.40. With estimated high annual EPS growth for the next five years and a healthy balance sheet, more upside is expected for CRM in the long-term.
On March 20, 2013, FBN Securities initiated coverage on CRM with an outperform rating and a price target of $210.00. On March 18, 2013, FBR Capital reiterated an outperform rating and increased its target price from $200 to $225 for CRM. Analysts currently have a mean target price of $196.54 and a median target price of $205.00 for CRM, suggesting 11.63%-16.44% upside potential. Analysts, on average, are estimating an EPS of $0.42 with revenue of $887.23M for the current quarter ending in April, 2013. For 2013, analysts are projecting an EPS of $1.97 with revenue of $3.87B, which is 26.90% higher than 2012.
On March 21, 2013, CRM announced today that its Board of Directors had approved a four-for-one (4:1) split of the company's common stock and that its stockholders have approved a proportional increase in the number of authorized shares of salesforce.com common stock from 400M to 1.6B. As reported, each stockholder of record at the close of business on April 3, 2013, will receive three additional shares for every outstanding share held on the record date. It is expected that the additional shares will be distributed by the transfer agent on April 17, 2013, and that trading will begin on a split-adjusted basis on April 18, 2013.
There are a few positive factors for CRM:
- Higher revenue growth (3-year average) of 32.7 (vs. the industry average of 6.4)
- Lower debt/equity of 0.1 (vs. the average of 0.3)
- Long-term debt/equity of 0.05
Technically, the MACD (12, 26, 9) indicator is showing a bearish trend, but the MACD difference starts to converge. The momentum indicator, RSI (14), is increasing and indicating a neutral momentum at 50.41. CRM is trading above its 200-day MA of $153.94 and had broken through and closed above its 50-day MA of $174.21 in the last trading day, as seen from the chart below.
How to Invest
With the recent pullback, bullish investors can review the credit put option spread of June 22, 2013 $160/$165 to gain some upside credit premium or to acquire CRM stock at a price below $165 upon options expiration. Investors can also review the following ETFs to gain exposure to CRM:
- S&P North American Technology-Software Index Fund (IGV), 8.04% weighting
- DJ Internet Index Fund (FDN), 4.45% weighting
- Large-Cap Growth Equity Strategy Fund (RWG), 3.31% weighting
SYMC was up 0.94% and closed at $24.63 on March 22, 2013. SYMC had been trading in the range of $13.06-$24.91 in the past 52 weeks. SYMC has a market cap of $16.97B with a beta of 0.96. SYMC offers a good price for its free cash flow and is currently trading at a fair valuation.
On March 20, 2013, UBS reiterated a buy rating and increased its target price from $24 to $28; however, Oppenheimer downgraded SYMC from outperform to perform saying the stock is running out of catalysts and is becoming a "show-me" story. Analyst Shaul Eyal noted,
We are downgrading SYMC to Perform from Outperform, removing our PT and leaving estimates unchanged. We are not making a call on SYMC's quarter or outlook; our change is based on SYMC approaching our prior PT of $25. On 3/19, SYMC closed $0.78, or 3%, below our PT, and NT upside becomes relatively limited as catalysts (new CEO + strategy, dividend) have played their course for now. With the above in mind and a 65.8% run over the past ~8 months, SYMC is becoming a show-me story with a heightened focus on execution. While Steve Bennett has shown solid execution since becoming CEO in July, we believe any future missteps could bring the bears back. Currently, we prefer stepping to the sidelines.
Analysts currently have a mean target price of $24.24 and a median target price of $25.00 for SYMC, which suggesting little upside potential for SYMC in the near term. Analysts are estimating an EPS of $0.38 with revenue of $1.73B for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $1.71 with revenue of $6.88B, which is 2.30% higher than 2012.
In early March, Symantec had been named one of the world's most ethical companies by the Ethisphere Institute. As quoted from Steve Bennett, president and CEO of Symantec,
Receiving this award for the sixth consecutive year is a testimonial to our strong ethical corporate culture. It sets an expectation for our employees, customers, shareholders and society as a whole that we will continue to exercise good business judgment and devote resources and energy to these programs.
There are a few positive factors for SYMC:
- Higher net margin of 16.6% (vs. the industry average of 13.2%)
- Stronger ROE of 23.2 (vs. the average of 15.5)
- Lower P/E, P/B, and P/S of 15.5, 3.3, and 2.6 (vs. the industry averages of 60.6, 4.4, and 3.9)
- Lower Forward P/E of 13.3 (vs. the S&P 500's average of 13.9)
- SYMC generates an operating cash flow of $1.67B with a levered free cash flow of $1.47B (P/FCF of 12.71)
Technically, the MACD (12, 26, 9) indicator is showing a bearish trend, and the MACD difference starts to converge. RSI (14) is showing a bullish lean at 66.87. SYMC is currently trading above its 200-day MA of $18.56 and 50-day MA of $22.71, as seen from the chart below.
How to Invest
Although the upside potential may be limited in the near-term, SYMC is reasonable valued at current Forward P/E of 13.3 with P/FCF of 12.71. Investors can consider leveraging options strategy to acquire SYMC shares at a lower price or gain some upside credit premium. A credit put option spread of July 20, 2013 $20/$22 put can be reviewed. Investors can also review the following ETFs to gain exposure to SYMC:
- S&P North American Technology-Software Index Fund , 5.36% weighting
- NASDAQ-100-Technology Sector Index Fund (QTEC), 2.31% weighting
- S&P Equal Weight Technology ETF (RYT), 1.56% weighting
Note: All prices are quoted from the closing of March 22, 2013. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.