Out on Wall Street, some stocks are shooting for the stars. Driven by optimism related to a COVID-19 vaccine, swift Federal Reserve action as well as better-than-expected economic data, the market has bounced back with sheer force since hitting a low point five months ago. Not only has the S&P 500 recovered its COVID-induced losses, but it has gone on to break a record, reaching a new closing high on August 21.
So, is there more growth on tap for stocks? For some, the answer is yes. According to the analyst community, a few names reflect serious growth plays. We aren’t kidding when we say serious. These are companies that have already notched impressive gains year-to-date, and are poised to see the growth keep on coming even after 2020 wraps up.
Bearing this in mind, we used TipRanks’ database to scan the Street for stocks that fall into this category. Locking in on three in particular, the analysts believe that each ticker, which also happen to boast a “Strong Buy” consensus rating, can keep the rally alive through the rest of 2020 and beyond.
Quidel Corporation (QDEL)
Best known for its rapid influenza testing products, Quidel is one of the top providers of point-of-care and near-patient diagnostic solutions. With a gain of 222% already achieved in 2020, the good news is set to keep on coming, according to the analyst community.
Five-star analyst Alexander Nowak, who covers the stock for Craig-Hallum, tells investors that “huge does not even describe the demand, nor the margins.”
“We already knew going into the results about the pre-announced revenue upside - what we learned was the incredible margin potential of these COVID products (mid 70%). We also learned that demand is multiple times larger than QDEL’s current supply. ‘Unfathomable’ was thrown out to describe the demand, and in a more quantitative sense QDEL saw at one point 5x more demand than supply,” Nowak stated. The analyst points out this demand doesn’t even include retail, pharmacies, schools, physician practices or employers, which best case scenario, could be addressed in mid-2021.
For Q2, QDEL reported revenue of $202 million, exceeding the $179 million consensus estimate. “COVID products were $109 million, below our $127 million estimate due to product mix among Lyra and Sofia... The lower COVID sales imply the core-QDEL business performed better than expected,” Nowak mentioned. QDEL guided for Q3 sales of $375 million, which flew past the Street’s $294 million call.
The company has placed a significant focus on its COVID-19 diagnostic tests, with it selling $52 million (approximately 1.7 million tests) in Lyra molecular COVID tests in Q2. That said, Nowak argues “Quidel’s real strength in COVID is a rapid point-of-care test on Sofia.”
Expounding on this, Nowak said, “The company produced 3 million tests in Q2 and we believe a large purchase order(s) as well as cycle between production/shipment led to the disconnect. There was little discussion around Lyra’s go forward production capacity, though it sounds as if there is enough demand to keep sales elevated for several more months.”
To conclude, Nowak commented, “Another way of saying it, there is plenty of clamoring for QDEL’s tests to keep estimates moving higher. With fundamentals still having potential for upside and more (not less) momentum-driving news to come (COVID/flu panel, distribution partnerships and likely more news on the realistic length of COVID’s tail), this is a stock that can keep working higher.”
Based on all of the above, Nowak has high hopes for QDEL. Therefore, he puts a Buy rating and $363 price target on the stock. This means a potential twelve-month rise of 50% could be in store. (To watch Nowak’s track record, click here)
Are other analysts in agreement? They are. Only Buy ratings, 3, in fact, have been issued in the last three months, so the consensus rating is a Strong Buy. Given the $361.50 average price target, the upside potential comes in at just under 50%. (See Quidel stock analysis on TipRanks)
Cloudflare Inc. (NET)
Protecting and accelerating internet applications, Cloudflare offers online solutions that don’t require any additional hardware, software or code. Climbing 128% higher since the turn of the year, several members of the Street believe that this growth narrative is only getting stronger.
Following a conference that the company participated in, five-star analyst Shaul Eyal, of Oppenheimer, is even more confident about its long-term prospects. NET recently raised its guidance after its Q2 2020 results blew estimates out of the water. The strong showing was driven by elevated demand from both new customer acquisitions and growth within the installed base.
During the quarter, the number of free and paying customers grew 40% year-over-year, and paying customers increased by 7,000, with the figure now landing at over 96,000. Additionally, the amount of customers spending over $100,000 annually rose 65% year-over-year. Importantly, visibility improved substantially in the quarter, which was part of the reason NET ramped up hiring.
Even though management said the global growth of internet traffic plateaued in the quarter, the frequency of cyber-attacks continues to rise. This means “the company's mitigation activity also continued to grow.” Eyal noted, “For example, for the same cohort of customers, NET blocked 37% more cyber-attacks per day in Q2 than in Q1, and if new customers are included, the growth in mitigated attacks was 63%.”
On top of this, NET’s Workers product, which was launched three years ago, is gaining traction, and “today ~10% of traffic flowing through the company's network is powered by Workers, and ~20% of new large customer deals include Workers.” Eyal commented, “NET recently announced a number of new Workers features, which should further fuel demand for this offering.”
Summing it all up, Eyal stated, “Cloudflare is the leader in its space, and the company says that client conversations during the COVID-19 disruption place NET squarely on clients' must-have lists. We expect NET to remain in growth mode, delivering strong revenue acceleration, for several quarters to come.”
In line with his optimistic approach, Eyal keeps his Outperform rating and $55 price target as is. This target puts the upside potential at 41%. (To watch Eyal’s track record, click here)
Most other analysts don’t beg to differ. 10 Buy ratings and 2 Holds have been assigned in the last three months. Therefore, NET is a Strong Buy. The $48.25 average price target implies shares could surge 24% in the coming year. (See Cloudflare price targets and analyst ratings on TipRanks)
Dynatrace Inc. (DT)
Providing all-in-one advanced observability with AI-assistance, Dynatrace enables clients to monitor, optimize and scale every app in any cloud. Even though it has already posted a year-to-date gain of 57%, some analysts believe there’s still plenty of fuel left in the tank.
After having conversations with management, RBC’s Matthew Hedberg tells clients he thinks that DT “did a great job talking through their differentiation vs. peers and why they are well positioned to benefit from trends post COVID.” The five-star analyst also notes that the recent pull-back following Datadog’s earnings release presents an attractive entry point.
Looking more closely at the long-term opportunity, the selling environment has improved compared to three months ago, with the acceleration of digital transformation deals and the move to the cloud “driving new and expansion business.” According to Hedberg, this reflects a major positive for the company post-COVID. He argues that the transition is creating new opportunities, given that roughly 40% of deals are greenfield, with new customer additions potentially accelerating based on the pipeline.
“Overall, we think a lot of this was evident in Q1’s 39% CC ARR growth (virtually unchanged vs. last year ex-conversion), and we believe growth and profitability can remain elevated for several years as the company separates from the monitoring pack,” Hedberg commented.
The analyst also points out that DT isn’t experiencing the same pressures as its peers. Why is this? Hedberg explained, “Because they focus on selling a high-end cloud monitoring software intelligence platform into the G15K and don’t see much of the ‘next-gen’ peers but rather continue to take share from legacy vendors (including Cisco/AppD) that still have billions of market share while also expanding within their base. Management also haven’t seen an impact due to competitor price changes, most notably New Relic, as again DT plays higher up in the enterprise and offers a premium product where value matches pricing.”
Adding to the good news, Hedberg sees DT’s base as being underpenetrated, with management optimistic about the new business pipeline. The company is expected to add 450 new customers for the rest of FY/21, which resembles Q2–Q4 of FY/20. “We liked hearing plans to increase quota reps by 20–25% this year, which could help sustain growth in the future. And, now that reps aren’t focused on converting Classic Dynatrace customers (as of April 1), that could free up an additional 20% capacity,” the analyst stated.
When it comes to the expansion side, growth in cloud-based applications, increasing scope in terms of what a customer monitors and cross-selling additional solutions such as Infrastructure, AIOps, Digital Experience, and Digital Business Analytics should allow DT to “maintain a 120%-plus expansion rate for the foreseeable future,” in Hedberg’s opinion.
It should come as no surprise, then, that Hedberg stays with the bulls. Along with an Outperform rating, he left the $55 price target unchanged. Should his thesis play out, a potential twelve-month gain of 38% could be in the cards. (To watch Hedberg’s track record, click here)
The bulls take the lead on this one. Over the last three months, 7 Buys and 2 Holds have been issued. So, this means that DT is a Strong Buy. At $49.44, the average price target suggests 24% upside potential. (See Dynatrace price targets and analyst ratings on TipRanks)
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