The top-shelf tech companies – the FAANG stocks we keep reading about in the news – are soaking up all the headlines, and the news is not good. As a group, they have lost over $1 trillion dollars in the last four months, prompting Wedbush’s Michael Pachter to say, “It’s been a slow motion train wreck.”
But some second-tier tech companies may offer compelling investments at more affordable prices, and with less risk than the FAANG’s are showing now. As Taimur Hyat of Prudential Financial points out, “Remember that volatility is the friend of long-term investors: It creates entry points for asset purchases at potentially attractive prices.” Let’s unpack the TipRanks data on three attractive tech stocks, in different areas of the technology sector, and see what top-rated analysts think of them.
Dropbox, Inc. (DBX – Research Report)
The online cloud storage and file sharing service had an excellent Q3, but the numbers came in just before the general market drop in November. Dropbox reported a 26% increase in revenue year-over-year, at $360.3 million, 11 cents per share in earnings, and raised full-year revenue guidance to $2.386 billion, but the company’s stock bump didn’t last long.
Still, Dropbox has a positive outlook going forward. There is that increase in full-year revenue guidance, and as CEO Drew Houston noted, “We're not going to run out of people who need Dropbox anytime soon and we have hundreds of millions of people who have used Dropbox.”
That positive outlook has attracted the attention of some of Wall Street’s top analysts. From JPMorgan, Patrick Walravens (Track Record & Ratings) noted that, in addition to the reported earnings, “…average revenue per user of $116.7, which rose 5.8 percent from a year ago and beat the consensus estimate of $114 and net new paying users of 445,000 came in ahead of the consensus estimate of 244,000.” He set a $37 price target, suggesting a 73% upside to the stock.
At RBC Capital, Mark Mahaney (Track Record & Ratings) raised his price target on DBX, also setting it at $37, noting, “Dropbox posted strong Beat & Raise Q3 results, delivering significant top- and bottom-line upside to RBC & Street estimates, with Q4 guide above Street for revenue & EBIT.” Mahaney is rated #37 overall in TipRanks’ analyst database.
Overall, Dropbox maintains a ‘Strong Buy’ analyst consensus rating, based on 9 ratings including 7 ‘buys’ and 2 ‘holds.’ The average price target, $35, gives a 65% upside potential from the current share price of $21.
Logitech International S. A. (LOGI – Research Report)
You are sure to know Logitech. This Swiss-based company manufactures and distributes a wide range of the peripheral hardware we all depend on for our computers and mobile devices; from keyboards to mouse pointers, to webcams, to microphones and headsets, you’re almost certain to have used a Logitech product recently.
At the end of November, Logitech conceded publicly that it had held negotiations to acquire Plantronics (PLT), which manufactures Bluetooth earpieces and gaming headsets, but that the talks had fallen through. The proposed deal would have been Logitech’s largest every acquisition, and would have expanded the company’s product lines.
Despite the collapse of the Plantronic talks, Logitech is still getting positive reviews from the market analysts. The stock has a ‘Moderate Buy’ on the analyst consensus, with a 48% upside based on a $46 average price target and a $30 share price.
Tom Forte (Track Record & Ratings), of DA Davidson, took a bullish stance on LOGI just before the Plantronic news broke. He set a $58 target and saying he saw, “…sales in the headsets & headphones category doubled in the month of October and broadening appeal for gaming, battle royale, and eSports as positive for the accessory company.” His target gives LOGI an 87% upside.
On Dec 21, after digesting the news about Plantronic, Loop Capital’s Ananda Baruah (Track Record & Ratings) noted, “Shares of Logitech can ultimately trade back into its prior trading range of a 20-25 times price-to-earnings multiple, making the stock attractive at these levels.” He set a $53 target price, for a71% upside.
T-Mobile US, Inc. (TMUS – Research Report)
The third-largest wireless carrier in the US is truly experiencing good times. At the end of October, T-Mobile reported $10.8 billion in revenue and $0.93 earnings per share, both beating the expectations. In addition, and better from the company’s perspective, Q3 FY18 was the twenty-second consecutive quarter with more than one million net new customers. It was a story of steady growth, and it sparked off a jump in the share price.
The general drop in equities during the last few weeks hurt TMUS in the markets, but it has shown a steep rise since the day after Christmas, regaining much of what was lost. Even news that the Federal government’s partial shutdown delayed an FCC review of an ongoing merger proposal with Sprint (S) did not stop TMUS’s gain in the last week. The proposed Sprint merger is seen as a step by both companies toward a more competitive position in the developing 5G market.
Market analyst Ric Prentiss (Track Record & Ratings) of Raymond James took note of the T-Mobile/Sprint merger plans on Dec 20, when he gave TMUS an $86 price target. Writing a week before the partial shutdown, Prentiss said, “The telecom merger is picking up political momentum in the Trump administration, which has increased the probability of it being approved.” It’s important to note here that the FCC’s delay is just that – a delay, and not a decision. The review should still happen when Federal funding is restored. Prentiss sees a decision coming early this year; it looks like both companies will have to wait until Congress and the President resolve the budgetary impasse.
In the meantime, T-Mobile possesses strong fundamentals. Oppenheimer’s Timothy Horan (Track Record & Ratings), ranked #44 overall in TipRanks’ analyst database, pointed that out in a review dated Nov 5, just after the quarterly report. He set a $90 price target, implying a 33% upside to TMUS stock and well above the analyst average.
In his comments, Horan said, “Wireless fundamentals were healthy in the quarter... A brand re-launch and new bundled unlimited plans should help prepaid going forward. TMUS/S have been investing heavily in their networks in preparation for 5G… TMUS/S can build the strongest 5G network with significant cost synergies.”
T-Mobile currently holds a ‘Strong Buy’ consensus, based on 7 ‘buy’ ratings and 1 ‘hold.’ Shares in TMUS are trading at $67, and the average price target of $82 gives the stock a 22% upside potential.
Author: Michael Marcus