Markets ended last week on a low note after a month of gains. It’s the same pattern we’ve seen all year, but write it down small: volatility, with swings up and down, especially in the tech sector. But the general trend is up. Year-to-date, the tech-heavy NASDAQ is up 12% and the S&P 500 over 15%. The common wisdom is that we will continue to see gains, if not on the same scale as pre-COVID.
Wall Street analysts have been busy looking for the best investment choices for the current environment. And what better stock to pick than one that has just been upgraded? Over the past week, analysts at investment firms JPMorgan and Needham have chosen two technology stocks to do so – not just further gains in a generally rising market, but a turnaround. They have upgraded these stocks from neutral to buy, a solid sign that investors should take note.
We have used the TipRanks platform to look up their current performance, and found that these are Strong Buy stocks, with double-digit upside potential. In short, the consensus has shifted and they look better for the street. Here are the details.
Duck Creek Technologies (DCT)
We’re starting with a Boston-based insurance company, which may not seem like the most likely place for a tech innovator, but Duck Creek made it that way. Duck Creek is a software company that makes industry-specific, cloud-based insurance management platforms available to major insurance companies. Duck Creek’s customers include big names such as Geico, AIG and Liberty Mutual, as well as smaller providers such as Cumberland Mutual, Concord and Pearl. The company’s software packages make it easy for insurers to manage routine industry tasks — and they’re scalable.
DCT went public last August, so the stock has only been on the NASDAQ for a little less than a year. The IPO was a successful event, raising $405 million, and the shares rose from $27 to $40 each on their first day of trading. The stock peaked just below $60 in February. Since then, the stock has bottomed out in mid-May, rising from their low of $35 to $43. Duck Creek now has a market cap of $5.7 billion.
Duck Creek Technologies has seen revenues rise in the past year since its IPO. Revenue was reported at $58.3 million in October and now stands at 67.9 million for the most recently reported quarter (Q3 of fiscal 2021, ending March 31). The gains were driven by higher subscription revenue, which the company said was up 56% year-over-year, and annual recurring SaaS revenue, which was up 64% year-over-year. In terms of earnings, the company reported a GAAP measure of $0.00 per share — breakeven — for the quarter. While not positive, this was better than the net losses reported in the previous three quarters.
JPM analyst Jackson Ader is impressed with the company’s early lead in the insurance cloud software niche, writing, “When it comes to cloud adoption, we see two areas that customers prioritize, namely ease of deployment and configurability , which Duck Creek both prioritized as it built its cloud platform. In our view, the decision to use a public cloud infrastructure (Microsoft Azure) was an important one because the open platform supports easy scalability.”
Ader adds about DCT’s outlook: “Duck Creek is currently leading the growth race, driven by its SaaS ARR growth of 74.7% in 2Q21. Cloud revenue is still small at $30.6 million and 49% of total revenue, but the rapid growth of its SaaS business is enough to bring the company’s overall growth rate above 18%…”
In line with these comments, Ader is elevating JPM’s stance on DCT from Neutral (ie Hold) to Overweight (ie a Buy), and his price target of $62 implies a 44% increase for the stock over one year. (To view Ader’s track record, click here.)
Duck Creek shares are currently selling for $43.10 and the average price target of $51.67 suggests there is room for a 20% gain over the next 12 months. The stock has received 9 recent analyst reviews, including 8 Buys and 1 Hold, for strong analyst buying consensus. (Check out Duck Creek’s stock analysis on TipRanks.)
Radware, Ltd. (RDWR)
For the next tech stock we’ll look at, we’ll switch to cybersecurity. Based in Mahwah, New Jersey, Radware is a cybersecurity provider for data centers and provides application delivery products to secure physical, cloud and software infrastructure. The company is a global leader in this field, serving more than 12,500 corporate and carrier customers worldwide.
Radware has delivered solid financial results. The company’s usual pattern is to post its highest revenue of the year in the fourth quarter of the year, with a dip in the first quarter, and the most recent quarterly statement, for the first quarter of 21, follows this pattern. Reported revenue of $66.7 million declined 3% sequentially, but increased 11% year-over-year. The company posted earnings per share of 8 cents, up 33% yoy. Earnings were supported by a record level of annual recurring revenue, up 10% yoy to $176 million. The company reported $435.3 million in cash reserves at the end of the first quarter.
Recently, Radware has signed a series of collaboration agreements with companies in Europe, Asia and the US. An agreement with Fujitsu will expand traffic capacity with the Spanish healthcare sector; a joint agreement with Involta will extend Radware’s DDoS protection to additional customers in the US; and a deal with Acantho will bring Radware’s cloud-based web application security to Italy. These are just the partnership agreements Radware entered into in June; the company is actively seeking partners for expansion projects.
That move to partnerships caught the attention of 5-star analyst Alex Henderson, from Needham. Henderson believes Radware’s recent partner agreements set the model the company will follow for continued growth, writing, “We were pleasantly surprised to see Radware achieve 9 contract/partnership wins on its security platform so far this year. Most of these projects look like material contributors to revenue once they’ve increased, although the exact timing of their contribution to growth is unclear. We believe this not only reflects an acceleration in revenue growth, but also the differentiated approach to market penetration through partnerships. This has become a core strength of the Radware model.”
Henderson offers a buy recommendation to RDWR stock, upgrading from Neutral based on those new contracts, and his price target of $40 indicates a 32% increase for the coming year. (To view Henderson’s track record, click here.)
Overall, Radware has a Strong Buy consensus rating based on 4 reviews, splitting 3 to 1 in favor of Buy over Hold. The average price target of $35.33 suggests a 16% gain from the trading price of $30.38. (Check out Radware’s inventory analysis on TipRanks.)
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Disclaimer: The opinions expressed in this article are those of the recommended analysts only. The content is for informational purposes only. It is very important to do your own analysis before making any investment.