Because the adoption of remote working as a measure to stay operational amid the COVID-19 pandemic has turned out to be beneficial for many businesses--delivering higher productivity and lower overhead--companies are now focusing on developing permanent hybrid working structures as several countries ease social distancing protocols. According to the 2021 Microsoft Trend Index, more than 70% of employees want flexible remote working options, and 66% of business decision makers are in the process of adopting hybrid working structures for the foreseeable future.
Consequently, the demand for software has been rising significantly to suit the needs of organizations as they redesign their operational structures. According to Statista, the global software industry is projected to grow at a 7.4% CAGR over the next four years to hit $772.45 billion by 2025.
Given this backdrop, the current tech sell off provides a fine opportunity for investors to now scoop up the shares of prominent software stocks Microsoft Corporation (MSFT), Oracle Corporation (ORCL), Salesforce.com, Inc. (CRM), and SAP SE (SAP).
Click here to check out our Software Industry Report for 2021
Microsoft Corporation (MSFT)
MSFT needs no introduction. As one of the world’s largest software companies, MSFT operates in three segments—Productivity and Business Processes, Intelligent Cloud and More Personal Computing.
On June 2, MSFT entered a partnership with Morgan Stanley (MS) to accelerate the financial institution’s digital transformation. The companies are also set to develop and co-design new application infrastructure for the financial services industry. MSFT’s partnership with one of the world’s biggest investment banking companies should allow MSFT to scale its operations and finances substantially.
On May 12, Micro Focus announced its collaboration with MSFT to facilitate digital transformation of state and local governments. This collaboration is likely to increase MSFT’s revenues substantially because federal agencies are investing heavily to digitize their operations.
Also in May, Mars, Incorporated and MSFT entered a long-term partnership to accelerate Mars’ digital transformation through the Microsoft Azure platform. This demonstrates MSFT’s dominance in the global cloud computing industry.
MSFT’s revenues increased 19.1% year-over-year to $41.7 billion in its fiscal third quarter, ended March 31. Its income from continuing operations grew 31.4% from its year-ago value to $17.05 billion. MSFT’s net income came in at $15.46 billion, indicating a 43.8% rise year-over-year. The company’s EPS increased 45% year-over-year to $2.03.
The Street expects MSFT’s revenues to rise 16% year-over-year to $44.11 billion in the current quarter (ending June 2021). A $1.90 consensus EPS estimate for current quarter indicates a 30.1% improvement year-over-year. The company has an impressive earnings surprise history as well; it beat the consensus EPS estimates in each of the trailing four quarters.
Shares of MSFT have gained 32.6% over the past year, and 10.5% year-to-date.
It’s no surprise that MSFT has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
MSFT has an A grade for Sentiment, and B for Stability and Quality. Among the 125 stocks in the Software-Application industry, MSFT is ranked #14.
To see additional POWR Ratings for Growth, Momentum and Value, click here.
Oracle Corporation (ORCL)
ORCL provides enterprise information technology services internationally. The company offers cloud software applications and hardware products and after sales services through direct and indirect channels. Its Oracle Fusion Cloud Enterprise Resource Planning (ERP) software has been named a Leader in the 2021 Gartner "Magic Quadrant for Cloud Core Financial Management Suites for Midsize, Large and Global Enterprises" list for the fifth consecutive year.
On May 30, the Tasmanian government digitized its COVID-19 vaccination program with Oracle Health Management system. This software offering should boost ORCL’s financials significantly.
Amid rising demand for ‘Arm technology computing’ ORCL announced its first Arm-based compute offering, OCI Ampere A1 Compute, on May 25. This should help the company to attract new customers globally.
ORCL’s revenue increased 3% year-over-year to $10.09 billion in the fiscal third quarter, ended February 28. Its operating income grew 10% from its year-ago value to $3.88 billion, while its net income improved 95% year-over-year to $5.02 billion over the period. The company’s EPS increased 112.7% year-over-year to $1.68.
A $11.04 billion consensus revenue estimate for the about-to-be-reported quarter ended May 2021 indicates a 5.8% improvement from the same period last year. Analysts expect the company’s EPS to come in at $1.31 in its fiscal fourth quarter, indicating a 9.2% rise year-over-year. Also, a $1.03 a consensus EPS estimate for the next quarter (ending August 2021) indicates a 10.8% rise from the year-ago value. Also, ORCL surpassed the Street’s EPS estimates in each of the trailing four quarters.
ORCL has gained 25.4% year-to-date. The stock gained 4.9% over the past month to close yesterday’s trading session at $81.09.
ORCL has an overall B rating, which equates to Buy in our proprietary rating system. ORCL has a B grade for Value, Quality and Stability. It is ranked #12 in the same industry.
Beyond what we’ve stated above, we have also rated ORCL for Momentum and Sentiment and Growth. Click here to view all ORCL’s Ratings.
salesforce.com, inc. (CRM)
CRM provides cloud enterprise software, with a focus on customer relationship management. On June 1, CRM was named as a Leader in the 2021 Gartner Magic Quadrant for Multichannel Marketing Hubs. The award marks it as one of the highly regarded companies in the market.
On June 2, CRM introduced two new digital 360 innovations-Marketing Cloud 360 and Commerce Cloud 360. Given the rising demand for cloud applications globally and CRM’s immense goodwill, its latest software solutions are expected to be a big hit.
CRM’s revenues increased 22.6% year-over-year to $5.96 billion in its fiscal first quarter, ended April 30. Its operating profit grew 352.9% from its year-ago value to $354 million. CRM’s net income was $469 million, indicating a 373.7% rise year-over-year. The company’s EPS increased 354.5% year-over-year to $0.50.
The Street expects CRM’s revenues to increase 22.3% year-over-year to $25.98 billion in 2022. The company’s revenues and EPS are expected to increase 19.5% and 15.5%, respectively, year-over-year to $31.05 billion and $4.32 next year.
Shares of CRM have gained 31.9% over the past year, and 3.7% year-to-date.
CRM has a grade B for Sentiment and Quality in our proprietary POWR Rating system. It is ranked #27 in the Software-Application industry.
To see additional POWR Ratings for Growth, Stability, Momentum and Value, click here.
SAP SE (SAP)
Headquartered in Germany, SAP is an enterprise application software company that operates through four segments: applications, technology, support and services. The company’s SAP S/4HANA Cloud has been named in the Leader’s quadrant in the 2021 “Magic Quadrant for Cloud Core Financial Management Suites for Midsize, Large and Global Enterprises”.
SAP is set to create the world’s largest business network. On June 2, the company announced its new innovations to help more than 5.50 million companies modernize and to digitize their business through this connected community using an assortment of SAP networks. SAP could be a game changer in the global frontier once this plan is realized.
On May 19, SAP named some of the top European brands that have picked SAP’s Customer Experience solutions to gain a 360-degree view of their customers. By choosing SAP these market leaders demonstrate the company’s immense market reach and growth potential.
SAP’s cloud revenues increased 7% year-over-year to €2.15 billion ($2.62 billion) in the fiscal first quarter, ended March 31. Its profit before tax increased 19% year-over-year to €1.34 billion ($1.63 billion). Its non-IFRS segment operating profit grew 17.5% from its year-ago value to €1.74 billion ($2.12 billion). Its cash and cash equivalents balance rose 32.2% from the prior year quarter to €10.33 billion ($12.57 billion) over this period. The company’s EPS increased 29% year-over-year to €0.88.
An $8.14 billion consensus revenue estimate for the fiscal second quarter (ending June 2021) indicates a 3.4% increase year-over-year. The Street expects the company’s EPS to rise 8.8% from the prior-year quarter to $1.49 in the current quarter. The company has an impressive earnings surprise history as well; it beat the consensus EPS estimates in each of the trailing four quarters.
SAP gained 12.6% over the past six months to close yesterday’s trading session at $137.84. The stock has gained 5.7% year-to-date.
SAP has an overall A rating, which equates to Strong Buy in our proprietary POWR Ratings system. SAP has an A grade for Sentiment and a grade of B for Quality, Stability and Value. It is ranked #3 in the Software-Application industry.
Beyond what we’ve stated above, we have also rated SAP for Momentum and Growth. Click here to view all SAP Ratings.
Click here to check out our Software Industry Report for 2021
MSFT shares were trading at $250.79 per share on Friday afternoon, up $5.08 (+2.07%). Year-to-date, MSFT has gained 13.28%, versus a 13.40% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.
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