3 Big Data Companies To Buy In 2013
Richard is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Although the probable uptick in IT enterprise spending has yet to materialize, it is nonetheless the expectation among industry experts. In 2013, “Big Data” is projected to take up a meaningful portion of corporate expenses as companies prepare for that inevitable cloud migration. Although there are many names currently in the pool of offerings, only a few will rise to occasion and not sink from competitive pressures. Here are three names to consider.
EMC (NYSE: EMC) – Price Target $30
At the heart of “Big Data” is EMC. In terms of growth capabilities and product cycles, there is no company that is better positioned. However, over the past couple of months the stock has fallen out of favor with investors – losing almost 20% due to EMC’s recent earnings disappointment. Granted, it was not a typical EMC quarter, but relative to expectations it was far from horrible.
EMC ended the September period with net income of $626.3 million, or 28 cents per share on revenues of $5.28 billion – climbing 3% and 6% year respectively. Unfortunately, both missed analysts’ estimates. EMC’s miss was a surprise. But the company proved that it was not immune to weak enterprise spending.
On the other hand, core operations remained solid – growing 3% and 2% in its storage and network storage segments. Likewise, that EMC’s high end storage business produced 5% growth was even more remarkable. This means despite the tough macro climate, customers were still willing to pony up top dollar for what is considered the best solution in the business.
Astute investors should consider accumulating this stock on weakness as it remains one of the steadiest performers on the market today. The company is poised to regain its superior sales growth and profitability once IT spending recovers. Investors should look for this stock to trade at $30 during the course of the next 8 to 12 months - even on the most conservative assumptions.
NetApp (NASDAQ: NTAP) – Price Target $40
In terms of big data, if EMC is “1-A” than NetApp has to be considered “1-B.” These two have had their battles and have traded neck-and-neck over the past couple of years. Although EMC has a slight lead in market share, investor sentiment seems to be favoring NetApp. But will it continue?
NetApp is up over 30% since reaching a recent low of $26. The Street could not pass up shares that have traded on the cheap. This is despite lingering questions about the company’s business. Some of which was highlighted in the company’s most recent earnings report.
For the period ending October, it was a concern that the company was only able to post a 2% increase in revenue. NetApp reported net income of $236 million, or 63 cents per share on revenues of $1.54 billion. On the bright side, it was a 7% sequential improvement and the company posted broadly in-line results. Also, it was not as if NetApp was being out-executed by EMC either.
Likewise, profitability was a plus. The company improved gross margins sequentially by half of a point. Although the year-over-year comparison showed a 1 point decline, I’m willing to give the company a pass on this because of the meaningful sequential improvements in operating margins, which jumped 54%. This means the company is doing well managing costs.
Investors should also be mindful of the M&A chatter that is constant with this company. Names such as Cisco and Oracle have become popular acquisition candidates. It will be a surprise if NetApp remains an independent company beyond 2013. At current levels, the stock is certain to reach $40 by the second half of the year.
IBM (NYSE: IBM) – Price Target $205
I’ve always liked IBM as a company and a stock. Although the company deserves credit for improved earnings over the past several years, its recent performances have been unimpressive. In 2012, the stock gained a paltry 6% - much of which was due to share buybacks and growing multiples. But despite some obstacles, investors should expect “big blue” to rebound from a less than stellar Q3.
IBM reported earnings per share of $3.33 on revenues of $24.7 billion. Though EPS climbed 4.4% year-over-year, it fell short of analysts’ expectations of $3.61 per share. Likewise, revenue estimates of $26.28 billion seemed too much to reach. Worse, the reported figure netted a decline of 5.4% year over year – the second consecutive quarter of deteriorating revenue.
On the other hand, IBM managed to improve profit margins by 90 basis points. Also, the company deserves credit for having managed a tough macro environment by focusing on higher-value businesses, strategic growth initiatives and productivity. As well, that the company’s software business climbed 3% was pleasant surprise.
Unfortunately, in the realm of big data IBM’s storage business declined by double-digit percentage points. This means that the company is ceding share to both EMC and NetApp. This is interesting because since (as noted) NetApp is an acquisition candidate and IBM has been growing via acquisitions, I wouldn’t be surprised if IBM makes a play for NetApp in the near future.
Still, in terms of value there is plenty to like with IBM at current levels. To reach the $225-$230 range, the company would only need to grow cash flow at a 5% rate over the long term. This would represent a gain of almost 20%. For now $205 seems to be more realistic. And patient investors looking for a well-run tech company should do well here.
rsaintvilus has no positions in the stocks mentioned above. The Motley Fool owns shares of EMC and International Business Machines. Motley Fool newsletter services recommend International Business Machines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!