The FAANG stocks aren’t the only place to find action in the tech sector. So far, tech growth is back on track after swooning in the 2H18. The Nasdaq index is up 19% since 2019 trading started on January 2. While the FAANG stocks get most of the headlines for pushing those gains, some of that impetus is coming from smaller firms.
There is plenty of growth to go around, and mid-sized companies are cashing in. From an investor’s perspective, growth is not their only advantage; where the tech giants mostly have a very high entry point, stocks in mid-cap companies are generally much more affordable per share.
Here we’ll take a look at three of those tech companies to see what they have in common and why the market likes them, and using the TipRanks analyst database as our guide. TipRanks analyzes the best Wall Street analysts, rating them by the success of their stock reviews.
Fidelity National Information Services (FIS – Research Report)
Fintech – the link-up between the financial and technological services sectors – is a hot topic these days. Encompassing everything from payment processing to banking software to online trading, fintech includes services for institutions, corporate customers, and Joe Average. If you just did your taxes on your home computer, you’ve used fintech.
Fidelity National Information Services, or FIS as it is better known, specializes in software and payment processing services, for institutional clients in retail and investment banking. It’s a lucrative niche, and FIS is reaping the reward; the company is up 12% year to date. Another indicator of FIS’ success in the field is its announcement, last month, that it will acquire UK-based Worldpay for $35 billion. The move is part of a trend toward consolidation in the online payment processing sector, but is also seen as a measure of strength on the part of FIS.
Wall Street’s analysts like what they are seeing. Raymond James’ John Davis (Track Record & Ratings), in an April 12 note, says that he believes “the Street underappreciates the strategic value of the recently announced Worldpay acquisition.” Davis goes on to enumerate three key advantages of the deal: “1) the fact that this deal accelerates WP's entrance into new, fast growing markets (i.e., Brazil and India), 2) the ability to leverage the NYCE debit network across WP's merchant base in the U.S., and 3) the natural fit between FIS and WP's Issuing businesses.”
Davis sets a $131 price target on FIS shares, indicating up to 13% upside for the stock.
Earlier this month, Joseph Foresi (Track Record & Ratings) of Cantor Fitzgerald, currently rated #1 in TipRanks’ database, compared recent fundamental and technical analyses of FIS, and saw potential for continued growth. He wrote, “Fundamentally, we believe the company has the opportunity to accelerate revenue growth, improve margins and deleverage, which should have a positive impact on results and multiples. Technically, FIS recently broke out of its sideways channel.” Foresi’s price target of $122, while more conservative than Davis’ above, still gives FIS nearly 8% of upside potential.
Overall, FIS’s Strong Buy consensus is based on 7 buy reviews and 1 hold, given over the past three months by the best performing analysts. The company’s $128 average price target indicates 13% upside for the shares. FIS currently sells for $113.
Agilent Technologies, Inc. (A – Research Report)
Agilent, which spun-off of Hewlett-Packard in 1999, produces analytical software, instruments, and services for laboratories in the chemical and biological industries. In short, Agilent provides the gear and software that scientists need to do their work. As with FIS this niche is a growth industry, and Agilent shares are up 23% this year.
Company’s management is not reticent about meeting with investors and analysts. Cowen’s Doug Schenkel (Track Record & Ratings) said that, after such a meeting, he “came away from the meetings with incremental confidence in the company's ability to continue posting above-peer average top and bottom-line growth in the near- and long-term. He believes shares are worth $90 and could see further upside as management continues to execute relative to expectations.” That $90 price target suggests another 11% upside for Agilent.
Writing from UBS, analyst Daniel Brennan (Track Record & Ratings) initiated coverage of Agilent on March 15. In is opening note, Brennan said, “Stronger revenue growth coupled with rising incremental margins support earnings forecasts being 2%-3% ahead of consensus.” His price target, $92, indicates an upside of 13%.
A’s shares are currently trading for $80, so the average price target of $86 would suggest an upside of 7%. The stock holds a consensus rating of Strong Buy, based on a unanimous 7 buys given in the last three months.
Keysight Technologies, Inc. (KEYS – Research Report)
Where Agilent spun off from Hewlett-Packard, Keysight spun off from Agilent. The company branched out on its own in 2014, and has never looked back. Keysight is up 49% so far this year, capping off gains of 225% over the last five years.
Those gains are built, like Agilent’s, on lab equipment. Keysight produces software and hardware for electronics and radio analysis and measurement. Multimeters, oscilloscopes, signal generators, in-circuit testers – Keysight produces a range of tools that you possibly have heard of, may even have seen, and almost certainly makes the tech in your life actually work.
Fast growth has gotten the notice of top-rated analysts. Jefferies analyst Brandon Couillard (Track Rating & Ratings) is currently rated #17 overall – out of more than 5,000 – by TipRanks. He looks at this company and says, “Keysight is very well positioned to benefit from multiple big growth areas that remain in the early innings, namely 5G, connected cars, aerospace and defense spend, and Internet of things. With its fiscal 2019 earnings per share rising to $4.00, Keysight has basically already reached its fiscal 2021 target just 12 months since putting it out.” Couillard’s $100 price target suggests a nearly 9% upside to the stock.
Couillard is not the only analyst to give Keysight high marks. Earlier this month, John Marchetti (Track Record & Ratings), writing from Stifel, gave his price target on Keysight a 15% bump, moving it from $87 to $100. It was another vote of confidence for this fast-growing company.
Keysight is our third Strong Buy consensus today, with its rating based on 4 buy reviews. KEYS shares have an average price target of $97, which implies an upside of 6% when compared to the current share price of $91.
Author: Michael Marcus