has a new software analyst, and on Friday he is making waves.
Kash Rangan has taken over the influential role previously held by Heather Bellini, who recently left Goldman to become chief financial officer of the cybersecurity company Deep Instinct after close to 10 years at the bank. Rangan, a familiar name to investors, comes to Goldman after 15 years covering technology stocks at BofA Securities and its predecessor Merrill Lynch.
“Given the run up in software valuations, our Buys lean more toward reasonably valued high quality growth franchises,” Rangan writes in a research note detailing his views on the group. “The pandemic drove significant customer reprioritization of spending on products in 2020 that we would consider ‘defense’ in software parlance (must haves such as video conferencing, remote desktops, security, etc.).”
Rangan adds that with Covid-19 vaccines rolling out and the economic outlook improving, he likes companies that should benefit as spending conditions improve and priorities shift to offense—areas like the public cloud, customer relationship management, human capital management, financials, and analytics.
Here’s a rundown on Rangan’s stock calls:
(ticker: ADBE). Target: $580. “Adobe’s franchise stands out as one with a loyal and growing customer base, which consider the brand to be the default tool of their profession despite several attempts by large and small competitors to change the game,” he writes.
(MSFT). Target: $285. “Microsoft stands out very uniquely in the technology world given its strong presence across all layers of the cloud stack including applications platforms and infrastructure.”
(CRM). Target: $315. “We believe that Salesforce remains poised to be one of the most strategic application software companies in the $1 trillion cloud industry.”
(NOW). Target: $670. “ServiceNow is well positioned to become a $15 billion-plus revenue cloud applications software company by the year 2026.”
(SPLK). Target: $240. “While the competitive landscape is crowded, we believe current stock levels and valuation represent a compelling entry point.”
(WDAY). Target: $330. “A uniquely positioned application software company addressing massive cloud replacement cycles in a $90 billion+ [market] spanning human capital resources, financials, analytics, planning, and procurement.”
(ESTC). Target: $190. “Despite our favorable view on the secular positioning of the company and strong upside to revenue estimates, given the ~41% run up since earnings on December 2, vs. the Nasdaq up ~9%, we believe the upside is largely priced in and await a better entry point.”
(INTU). Target: $430. “Given the recent performance in the stock…we await a better entry point.“
(SNOW). Target: $310. “With the stock trading at 87x our calendar 21 sales estimate, we would wait for a better entry point to become more constructive and view risk/reward as more balanced at current levels.”
(VMW). Target: $150. “While the company has a strong position in both virtual machines and containers on-premise, it is yet to be determined if VMware can leverage its install base and its cloud partnerships to gain meaningful share with containers in the public cloud…. We also note that the CEO transition creates near-term uncertainty.”
(ADSK). Target: $270. “With the stock trading at 16x enterprise value/sales, we view the risk/reward as skewed to the downside at current levels and would wait for a more attractive entry point before becoming more constructive.”
(ORCL). Target: $60. “Unlike other cloud transition stories, Oracle’s move to the cloud has taken much longer than expected.”
Rangan clearly has an attentive audience. All six of his Buy-rated stocks were trading higher Friday morning, with gains ranging from 0.5% for Adobe to 1.9% for Microsoft. All of the Neutral- and Buy-rated stocks were trading lower, with Autodesk off 0.4% and Oracle down 1.1%.
Write to Eric J. Savitz at [email protected]