Oracle and FedEx tipped for Wednesday releases

Wednesday – Oracle

Last quarter Oracle’s (ORCL) long serving frontman Larry Ellison stepped down from his role as CEO and appointed 2 co-CEO successors. Heading into Oracle’s first quarter in the post-Ellison era Estimize community members are expecting the technology company to continue growing steadily and slightly outperform Wall Street’s earnings expectations.

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Wednesday Estimize contributors are looking for a 1 cent gain in earnings per share while year over year revenue rises 3%. These results would maintain Oracle’s rate of sales expansion over the past 5 quarters and represent a slowing of profit growth to a rate between 1% and 2%.

Wednesday – FedEx

At one point this summer crude oil was trading at over $100 per barrel. As we enter the final stretch of the year that price has collapsed to just $56. As a major player in logistics FedEx’s (FDX) financial performance is greatly impacted by the price of oil, falling gas prices throughout the fall could provide FedEx an opportunity to post gains to its bottom line.

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Over the past 3 months EPS estimates and revenue projections from both Estimize and Wall Street have been rising. With the final picture clearing up the Estimize community’s EPS forecast is settling at $2.16 per share, 2 cents lower than the Wall Street consensus, but still an impressive 38% higher than the number FedEx reported in the same quarter of last year.

On the top line Estimize analysts are calling for $11.99 billion which is marginally higher than Wall Street’s prediction and would mark a 5% improvement from last year’s total.

Service Now BUY

NOW : NYSE : US$58.07
BUY 
Target: US$72.00 

COMPANY DESCRIPTION:
ServiceNow is a leading provider of cloud-based services
that automate enterprise IT operations — this includes a
suite of applications built on the firm’s proprietary
platform that automates workflow and provides
integration between related business processes.
ServiceNow was founded in 2004, is headquartered in
San Diego, CA and has been public since June 2012.

Technology — Enterprise Software — Infrastructure
PREMIUM EXECUTION FROM A PREMIUM COMPANY; REITERATE BUY
Investment thesis
Whether we get a Q4 software rally or not, we continue to believe that the first place
investors will look is going to be open-ended, leading growth firms in relatively
uncrowded segments. This describes ServiceNow. While more than 9x revenues on
2015E is at the high end of where we like to recommend the most premium growth
names, we believe NOW warrants the premium. Indeed, even with a likely
degradation of the multiple, we believe this stock should easily generate more than
20% upside over the coming 12 months. Reiterate BUY.

No surprises here, another upside quarter. NOW reported strong Q3/14 results
with revenue of $178.7M (+61% y-o-y) and operating income of $10.2M, which
were respectively $3.7M and $8.0M ahead of our estimates
Calculated billings of $200.7M (+ 58% y-o-y) were $2.3M better than our Street-high
forecast and well ahead of management’s $190-193M guidance.
 Customer metrics. Average revenue per user was $275K, up 21%

Outlook: momentum continues,

 

inching forecasts higher again. NOW’s Q4/14
guidance set expected revenues roughly $1.5M ahead of our previous estimate
(despite a $4M FX headwind) and calculated billings ~$10M ahead. Our revised
Q4/14 revenue and billings estimates imply respective y-o-y growth of 55% and
50%. We have similarly increased our C2015 revenue and FCF estimates by
$7M and $25M to $940M (+39%) and $127M, or $0.74 per share

Salesforce.com Update BUY

CRM : NYSE : US$55.71 BUY 
Target: US$65.00
WHAT THE FIRM COULD DO TO HELP THE STOCK OUTPERFORM THE MARKET.
Investment thesis
As the best-in-class cloud software firm, Salesforce remains our favorite large cap
growth stock. With more transparency (revenue run-rates of the various clouds was
a good start), the firm could see multiple expansion; however, even if this doesn’t
happen, we expect the shares to advance at least 20% over the next 12 months.
That’s a worthwhile potential return for a large cap stock. BUY.
 Another upside print. CRM reported Q2/15 revenues and non-GAAP EPS of
$1.32B and $0.13, which were respectively $29M and a penny ahead of our
estimates. Constant currency revenue growth was 37% in the quarter, and
calculated billings of $1.35B were nicely ahead of our $1.30B estimate and up
33% compared to a year ago. Total backlog (billed and unbilled) ended the
quarter at $7.35B, which is up 17% versus Q2/14. Lastly, CRM generated FCF
of $174M, or $0.27 per share, which was well ahead of our $0.18 estimate;
YTD FCF is up 90% compared to 1H/14.
 Color from the call. The firm noted an 8-figure deal (one of several) with 3M in
the quarter as well as a Salesforce1 Platform deal with Safeway. In the quarter,
sales cloud was 49% of subscription revenue, service cloud 26% (though the
fastest growing), SF1 platform 15%, and marketing cloud 10%. On the event
front, CRM will host its Connections marketing cloud conference in late
September (which could pressure a stock like MKTO as the firm makes noise on
that front), and management suggested that the firm will be introducing an
entirely new product line and category at Dreamforce in October.
 Outlook: F2015 revenues increase ~$40M, EPS inches up by a penny. This was
a classic beat and modest raise quarter. Revised guidance points to 32%
revenue growth and ~150 bps of operating margin expansion in F2015.
Interestingly, Q3/15 marks the first full quarter that CRM will have lapped the
ET acquisition, and implied billings guidance suggests healthy, 25% growth

Opower BUY

OPWR : NYSE : US$17.29

BUY 
Target: US$23.00

COMPANY DESCRIPTION:
Opower combines big data analytics and behavior science to
provide utilities around the world with cloud-based software
solutions for customer engagement, energy efficiency, and
demand response. The firm was founded in 2007, is
headquartered in Arlington, VA, and trades on the NYSE under the
ticker “OPWR”.

All amounts in US$ unless otherwise noted.

Technology — Enterprise Software — Software as a Service
FIRST STEP ON WHAT SHOULD BE A LONG RUNWAY; REITERATE BUY,
TRIMMING TARGET TO $23
Investment thesis
Opower posted a good start as a public company with greater upsides than we
expected. The firm’s growth spending should pay off in terms of a long-term
upward margin ramp beginning in early 2015. Meanwhile, in our opinion the
firm remains the definitive leader in consumer oriented energy efficiency and
energy data analytics space. The stock has the potential to deliver significant
returns over the long-run. Reiterate BUY.
 An upside out of the gate. OPWR reported total revenues and Adjusted
EBITDA of $28.6M and ($4.3), which were respectively $2.4M and $3.6M
ahead of our estimates. Revenue growth was 50% in the quarter. Calculated
billings of $34.2M were nicely ahead of our $31.6M estimate and up 17%
year-over-year versus a very difficult compare. Cash from operations was a
($2.1M) loss, which was better than our ($4.4M) estimate.
 Color from the call. Opower signed a deal with TEPCO in the quarter, which
is Japan’s largest utility (20M households) and the firm’s first major win in
the region. Sales hiring has accelerated to meet C2014 targets, and
management is pleased with the pace and early productivity of new
additions. Recurring revenue loss due to non-renewals has been <5% every
year since inception, which speaks the firm’s high level of visibility.
 Outlook: C2014 guidance well ahead of expectations. OPWR provided
guidance for the first time, setting mid-point C2014 revenue and EBITDA
targets that were respectively $5M and $2M better than our estimates. We
now expect the firm to grow revenues ~33% this year, which is up from our
pervious 27% estimate, and report EBITDA losses that are in the mid-20%’s
as a percent of sales – we believe there is still likely ups on both metrics.

Akamai Technologies BUY

AKAM : NASDAQ : US$54.53
BUY 
Target: US$68.00

COMPANY DESCRIPTION:
Akamai provides content delivery and cloud
infrastructure services for accelerating and improving the
delivery of content and applications over the Internet,
ranging from live and on-demand streaming videos to
conventional web content, to c-commerce tools. The
company is headquartered in Cambridge, Massachusetts

Telecommunications — Telecommunications
STRONG Q1/14; INCREASING ESTIMATES; REITERATE BUY
Investment recommendation
Akamai once again managed to produce yet
another quarter of above-expectations growth and margins with a
solid outlook for Q2/14. Even though the company has reiterated
its H2/14 margin guidance for 40%-42%, we note they have
consistently beat their margin forecast for the past six quarters.
Strong volume growth and reported traction in the security
business should continue to provide investors with confidence that
the company will continue to produce solid double-digit top-line
growth with improving margins.
Investment highlights
 Managing expectations – delivering results – As has been the
case with the company for the past six quarters, guidance
beyond the next quarter was once again muted with the
expectation for margins to return to 40%-42%. Q2/14 revenue
estimates call for $464-478mm with slightly lower margins.
 Volumes trends remain strong – Although we had speculated
that recent traffic trends were supported by continued Internet
video growth, the strength appeared equally strong from
software downloads as well as gaming.
 Reasonable valuation relative to history – Currently priced at
8.8x 2015E EBITDA, we find the stock to be attractively
valued, especially given accelerating growth trends

 

ePlus BUY Target Price $65

PLUS : NASDAQ : US$50.01
BUY 
Target: US$65.00 

COMPANY DESCRIPTION:
ePlus is a direct marketer and authorized reseller of IT
solutions from several large OEMs, including Cisco, HP,
VMWare, NetApp, EMC, Citrix, Apple, Dell and Microsoft.
The company offers a range of solutions focused on data
center, storage, security, cloud enablement and IT
infrastructure. Headquartered in Herndon, VA, ePlus was
established in 1990 and incorporated in 1996.

 

Technology — Hardware — Semiconductor Devices and Related
Technologies
STRONG FUNDAMENTAL GROWTH FROM CLOUD IT BUILD-OUT
Investment recommendation
We reiterate our BUY rating and $65 price target following PLUS’s 1.57
million secondary share offering. We expect PLUS shares to benefit from
the increased public float and we see potential for upside to revenue and
EPS as advanced technology solutions continue to see healthy demand
from big data, mobile device management, security and other drivers.
We are adjusting our estimates off of PLUS’s preliminary MarQ results.
Investment highlights
 PLUS completed a secondary offering of 1,573,913 shares at
$50/share with an option for the underwriters to purchase an additional
236,087 shares. PLUS will repurchase 400,000 shares at $50/share,
lowering the total shares outstanding to 7.6 million shares compared to
the prior 8 million share count.
 PLUS expects MarQ revenue to be in the range of $255 million to
$261 million compared to our prior estimate of $264 million.
Management highlighted the 8% to 10% Y/Y revenue growth was driven
by strong demand for IT products and services from their large
customers. PLUS expects EPS for the MarQ to be in the range of $1.00 to
$1.06, well above our prior $0.81 estimate.
Valuation
PLUS’s price target of $65 is approximately 12x our C2014 EPS estimate
of $4.84 plus net cash of $5.07 per share.

Q2 Holdings

QTWO : NYSE : US$13.68
BUY 
Target: US$17.00

COMPANY DESCRIPTION:
Q2 Holdings provides a cloud-based platform for
customer facing web and mobile banking solutions for
regional and community financial institutions. The
platform enables users to pay bills, check balances,
transfer funds, and deposit checks through a unified
online platform or mobile device. Q2 was founded in
2004 and is headquartered in Austin, TX.

All amounts in US$ unless otherwise noted.

 

GROWTH; INITIATE WITH BUY, $17 PT
Investment thesis
In our opinion, Q2 Holdings could be one of the quiet winners of the recent IPO
class. The firm sells customer-facing banking applications, competing largely
with legacy software vendors and aging custom code. Q2 signs 5+ year
subscriptions (excellent visibility), is growing revenues ~30%, but won’t likely
break even until sometime in 2017. If Q2 can articulate and demonstrate a
clear and consistent path to profitability, the stock could get re-valued into the
25%+ growth SMID cap cloud cohort, which implies a 7-9x forward revenue
multiple. As is our custom, our price target is more conservative and assumes a
modest deterioration in the EV/revenue multiple, but a 20% appreciation in the
face of 30% revenue growth. We are initiating coverage of QTWO with a BUY.
Investment highlights
 An upgrade cycle is underway. Regional and community financial
institutions (RCFIs) are increasingly becoming viable competitors to the
national mega-banks – this means that they too need online and mobile
banking functions and sleek, next-generation user interfaces. Enter Q2.
 Legacy competition. Being founded in the mid-2000s, Q2 has the
advantage of being constructed on a unified, cloud-based platform with a
mobile-first development mentality. The firm competes either with vendors
like Digital Insight (NCR) and First Data, who are attempting to morph
timeworn applications, or oftentimes in-house, custom-built code.
 Attractive micro-economics. Q2 signs 5+ year initial deals, dollar-based
retention including upsell tops 125%, and the firm crosses into profitability
after 1.8 years of a new customer relationship. This means that in the near
term at least, the faster Q2 adds clients, the more money they will lose.
 What it means for the numbers. From the firm’s roughly $65M run rate,
we expect Q2 to be a ~30% revenue grower for the next several years.
Gross margins should scale from ~40% this year to 60%+ with scale, and
Q2 should become cash flow and EBITDA profitable sometime in 2017.