Goldman sees Microsoft, Salesforce and Coupa benefiting from the digital transformation spending that has been accelerated in the wake of the pandemic
Shares of Microsoft (MSFT), Salesforce (CRM) and Coupa Software (COUP) are on the rise on Monday after Goldman Sachs analyst Kash Rangan added the trio of software stocks to his firm's Conviction List and reiterated Buy ratings on the names. Meanwhile, his peers at Morgan Stanley raised their industry rating for Software to Attractive from In-Line following the recent pullback in several stocks in the space, which they view as due largely to rising interest rate fears.
DIGITAL TRANSFORMATION SPENDING: Goldman Sachs analyst Kash Rangan added both Microsoft and Salesforce to the firm's Conviction List and reiterated a Buy rating on the shares. The analyst argued that Microsoft and Salesforce are well positioned to capitalize on digital transformation spending, which will outpace overall IT budgets for the "foreseeable future." Rangan also added Coupa Software to the firm's Conviction List and reiterated a Buy rating on the shares with a price target of $413. The analyst sees Coupa continuing to benefit from the increasing CFO digital transformations. Further, the company is an accelerating growth story in 2021, which sets up well for a "steady cadence" of positive revenue revisions, and therefore a re-rating of the multiple as well, Rangan told investors in a research note.
RISING INTEREST RATE FEARS: Morgan Stanley analysts Keith Weiss, Meta Marshall, Stan Zlotsky, Sanjit Singh, Josh Baer and Hamza Fodderwala have raised the firm's industry rating for Software to Attractive from In-Line, noting that the overall software group is down about 16% on average from recent highs. The analysts see a "glaring dichotomy" between the bullishness of software management teams shown at the Morgan Stanley TMT conference last week around the ramping demand trends for core secular growth themes and the recent bearish price action, said the group. This increases their conviction that the pullback in multiples is due largely to rising interest rate fears, and continued sector rotation into cyclicals, not concerns on underlying software fundamentals.
The analyst group highlighted Intuit (INTU), Microsoft, Palo Alto Networks (PANW), Adobe (ADBE), Domo (DOMO), Nuance (NUAN), Nice (NICE), ServiceNow (NOW), Splunk (SPLK), Workday (WDAY), Veeva (VEEV), ZoomInfo (ZI), Anaplan (PLAN), Atlassian (TEAM), Chegg (CHGG), Coupa, Docusign (DOCU), MongoDB (MDB), RingCentral (RNG), and Twilio (TWLO) as some of their Overweight-rated names in the space.
WHAT'S NOTABLE: Appaloosa Management's David Tepper told CNBC that he is getting bullish on stocks with rates stabilizing. "Basically, I think rates have temporarily made the most of the move and should be more stable in the next few months, which makes it safer to be in stocks for now," he said. The billionaire believes another catalyst for stocks in the near-term is the fiscal stimulus package that was just approved by the Senate. Tepper added that he finds it difficult to be bearish on stocks right now and thinks the selloff in Treasuries that has driven rates higher is likely over.
PRICE ACTION: In morning trading, shares of Microsoft and Salesforce have gained about 1% each to $231.79 and $21.60, respectively. Also higher, Coupa has advanced almost 3% to $293 per share in Monday morning trading.