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Accenture Survives Software Sag Of ’16; Stock Flirts With Record

Seemingly fully recovered from the infamous Software Sag of 2016 in January and February, big-cap Accenture ( ACN ) is flirting with a record-high stock price amid growth in its services, as it heads towards its fiscal Q2 earnings release due before the market open Thursday. Accenture stock was down a fraction in early trading in the stock market today , near 108, 18% above its seven-month low of 91.40 touched on Feb. 9 and just 2% off an all-time high of 109.86 set Oct. 28. Analysts polled by Thomson Reuters on average estimated Accenture earned $1.18 per share minus items for the quarter ended in February, up 9% from the year-earlier period, on revenue of $7.72 billion, down 2.6%. Accenture guided Q2 to $7.62 billion at the midpoint of its range. Dublin-based Accenture “cited no weakness in its financial services pipeline” during its Q1 earnings release on Dec. 17, wrote Cowen analyst Bryan Bergin in a recent research note. “This was (about) three weeks before a tumultuous start to 2016, and nearly two months prior to (services rival Cognizant Technology Solutions ( CTSH )) sounding warning bells in its banking and financial services vertical.” In the Cowen Feb. 25 research note, entitled “The Sky Does Not Appear to be Falling in Financial Services IT Spending,” Bergin wrote that “vendors that have noted service interruption have generally tied such weakness to a handful of specific clients. There have been Indian vendors with reports of healthy internal fiscal 2017 revenue growth targets, (notably Infosys ( INFY ) and Wipro ( WIT )) and positive industry demand narratives across investor days by ( Genpact ( G ), Epam Systems ( EPAM ) and Tata Consultancy Services) that have not yielded indications of across-the-board financials’ spending declines.” He noted that Accenture has grown revenue in financial services in constant currency in four of the last five quarters, although financial clients represent only 21% of Accenture revenue in the last 12 months. In a research note last week, Trefis applauded Accenture for a “very resilient business model,” with 45% of its business in outsourcing and 55% in consulting. Cowen rates Accenture stock at outperform, with a 115 price target. With a healthy IBD Composite Rating (CR) of 80, meaning its stock is outperforming 80% of S&P 500 issues in a variety of metrics, Accenture is worth about half of IBM ‘s ( IBM ) $142.8 billion in terms of market cap. IBM has a weak 56 CR. Infosys, with an 86 CR, has a $42.5 billion market cap, while Cognizant, with an 83 CR, is worth about $36.2 billion based on its stock price. Newly freed from PCs and printers, Hewlett Packard Enterprise ( HPE ) earns a 65 CR, with a $30.4 billion market cap. Slightly smaller Wipro carries a 68 CR, with $30.3 billion in market value. Those six companies comprise the largest members of IBD’s Computer-Tech Services industry group.

Apple’s Product Launch: What The Stock Market Loved And Hated

Apple ( AAPL ) investors on Monday were most excited about the new lower starting price for the Apple Watch, but they were most disappointed about the lower-than-expected starting price for the new iPhone SE. That’s judging by minute-by-minute trading in Apple stock during the company’s spring product launch event . Apple stock rose as the start of the company’s spring product launch approached. Shares opened at 106 on Monday, a fraction higher than its prior close of 105.92. It reached a high for the day of 107.03 at 10:22 a.m. Eastern Time, less than three hours before the event. When the product launch event started at 1 p.m. ET (10 a.m. Pacific Time), Apple stock had dipped to 106.46, but was still in the green for the day. Shortly after the event started, Apple’s share price began to dip, especially as Chief Executive Tim Cook introduced Lisa Jackson, vice president of environment for Apple, to talk about the company’s environmental initiatives. But Apple’s stock price began to climb when Jackson unveiled Liam, the company’s iPhone recycling robot. Apple stock continued to rise as company executives discussed health-care software initiatives for the iPhone and Apple Watch. Apple hit its highest point during the 63-minute event when Cook announced that the starting price for the Apple Watch would drop $50 to $299. Shares climbed to 106.58 at 1:29 p.m. ET. However, Apple shares soon retreated when the company started discussing software tweaks to the Apple TV and introduced the new 4-inch iPhone SE. Apple stock hit its lowest price of the day after the company announced pricing for the iPhone SE. The new smartphone will start at $399, as much as $100 less than analyst estimates. Shares slipped to 105.14 at 1:51 p.m. ET on the disclosure. By the time the event ended at 2:03 p.m. ET, shares had recovered a bit to 105.72. The stock ended Monday at 105.91, almost dead even for the day. Apple stock was up nearly 1% in early trading in the stock market today , near 107.

Red Hat Earnings: Amazon A Threat In Linux Landscape?

There’s a notion out there, says Deutsche Bank analyst Karl Keirstead, that Amazon ’s ( AMZN ) flavor of the Linux open-source operating system is about as good as other Linux distributions — and since it’s free and Amazon Web Services (AWS) offers good support, converting is cheap. So does that stand to hurt Red Hat ( RHT ), which reports its fiscal fourth-quarter 2016 earnings after the stock market close Tuesday? “Bottom line, we conclude that the number of migrations from RHEL (Red Hat Enterprise Linux) to Amazon Linux remains quite modest and mostly confined to small enterprise customers,” Keirstead wrote in a research note March 13. “Larger RHEL-centric customers have only a small mix of workloads on AWS, they value OS consistency across their hybrid infrastructures, they prefer support from RHT and/or view the cost savings of a switch as being too modest to be worth the hassle. “These advantages appear to more than offset a view that AMZN Linux is at/near functional parity with other Linux distributions.” Keirstead reiterated Deutsche’s buy rating for Red Hat with a 95 price target, which might take Red Hat a couple of months to achieve if it stays on the same upward trajectory that it’s maintained since bottoming out Feb. 8 at a two-year low of 59.59. Red Hat stock was unchanged at 74.90 on Monday after rising 3.2% last week, closing just below its 200-day moving average. Shares are just 12% off a 16-year high set Dec. 30, 24% above its Feb. 8 low. But it looks like Red Hat is rebounding firmly from the Software Sag of ’16 that battered many of Red Hat’s rivals and tech players in January through early February. Red Hat stock gets an IBD Composite Rating of 84 out of a possible 99, factoring in earnings, sales, stock performance, institutional ownership and other metrics. Enterprise software developer Salesforce.com ( CRM ) carries an 81, Microsoft ( MSFT ) ranks 76, software giant Oracle ( ORCL ) earns a 61 and SAP ( SAP ) a 70. For its Q4 ended Feb. 29, analysts polled by Thomson Reuters expect Red Hat earnings per share up 9% from a year earlier to 47 cents minus items, matching the company’s guidance. Analysts expect revenue up 16% to $537 million, which also would match the midpoint of the company’s guidance of between $535 million and $539 million, and rival the year-ago sales growth rate of 16%. At those levels, Q4 would be Red Hat’s first quarter decelerated to single-digit growth since EPS flattened at 42 cents in fiscal 2015’s Q3. It would be the 16th consecutive quarter of mid-to-high-teens sales growth. In a research note issued Thursday, Robert W. Baird analyst Steven Ashley warned that Red Hat’s long-term revenue growth in Q4 could have fallen below expectations as seen in historical, sequential long-term growth weakness every three years, going back to Q4 2007. This is due to what he theorizes as three pools of larger deals that renew every three years in Q4, with the most recent cohort in Q4 being smaller than the others. “We believe this nuance (if correct) is truly just ‘noise’ and short-term billings should remain strong,” Ashley said. He models Q4’s total billings growth (long-term and short-term) at a 10% year-to-year improvement vs. the 12% consensus. “Where could we be wrong?” Ashley asked. “Signing a bunch of ‘new’ large three-year deals could augment the smaller renewal pool.” He tipped his hat to Baird’s outperform rating on Red Hat with an 80 price target.