Canaccord Genuity analyst Richard Davis today writes that trading could be rough for some “cloud” computing-related software companies over the summer.
“The average [software as a service (SaaS)/Cloud software stock [based on] 2011 estimates is valued at 6.6x EV/revenues and 38x Free Cash Flow,” writes Davis, “for businesses that should grow revenues 25% and FCF 52% on average. I think we could see a multiple point come off of the revenue multiple to get us to the 5-6x forward level; which implies 16% multiple compression.”
Davis actually has Buy recommendations on several of these stocks, and so his purpose is to point out where there may be opportunity for investment if there is a downdraft in the shares.
Autodesk (ADSK) could be picked up if it “drifts to $40,” he writes; the stock closed at $42.50 today.
Ansys (ANSS): “This is a super high-quality company with a lot of fans who seem very unlikely to let the shares drift too low before buying more.”
AspenTech (AZPN): “The stock might rest for a bit here, but we expect to see the stock nicely higher by year end.”
Salesforce.com (CRM): The first place “growth money” will go if investors get aggressive again — not now, but sometime around Q4, at the latest.
Constant Contact (CTCT): “The stock is in a vicious cycle in which investors assume that the stock is “telling them something” when that is not likely the case. Once the selling is done, we expect shares to move higher, eventually on their way to $40+.”
Other names he likes include Descartes (DSGX), Bottomline (EPAY), Lionbridge (LIOX), Nuance (NUAN), Oracle (ORCL), Pegasystems (PEGA), Parametric (PMTC), SPS Commerce (SPSC), Monotype (TYPE), and Ultimate Software (ULTI).
Davis has Hold ratings on NetSuite (N), Intuit (INTU), and SuccessFactors (SFSF). |
