This Company is Getting Love from all the Right Places
Today’s featured company was recently recommended by one of the top stock-pickers in the country and is endorsed by our own Dr. Thomas Carr, himself no slouch when it comes to identifying market-beating opportunities.
This company’s biggest competitor – Salesforce.com – in late August reported a blow-out quarter that sent shares to all-time highs. Sometimes, a strong performance by a company with a dominant market share doesn’t bode well for the rest of the pack. But when it comes to this particular brand of cloud-computing services, there’s plenty of business to go around. And analysts are expecting good things when the company releases its next quarterly earnings report late next month.
— Bob Bogda, Editor
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A securities or equity analyst is a finance professional, typically employed by an investment bank or mutual fund, whose job is to research publicly traded companies in order to spot trends and develop forecasts regarding those companies’ forward earnings prospects (and hence, future stock prices).
Let’s be honest: most analysts are not very good at their job.
There is an online service that scores licensed securities analysts on how well they perform. TipRanks.com has a 5-star rating system that ranks these tipsters on how many reports they write up, how accurate those reports are, and what the average 12-month gain or loss is of the stocks they recommend. Of the 7,000 analysts in the TipRanks database, only 25 are worth following. The rest – that is, 99.65% of all stock analysts – have a hard time even beating the S&P 500.
Of those in the top 25, one guy sits heads-and-shoulders above the rest. Brent Bracelin, who works for Piper Sandler – a leading investment bank founded in 1895 – has made nearly 400 recommendations, mostly over the last eight years. He’s been right 81% of the time, meaning his picks have gone on to hit his price targets eight times out of ten within a year. Bracelin’s average “buy” rating yields a return of 35.3% over 12 months. To paraphrase an old E. F. Hutton commercial, when Bracelin speaks, we should listen.
On September 1, Bracelin spoke. He came out with a report on Zendesk (ZEN), a cloud-based software-as-a-service (SaaS) company that helps enterprises track, sort, and solve customer support issues. Bracelin had given ZEN a grade of “hold” back on May 1. But with this upgrade, Bracelin declared that Zendesk now has “several underappreciated levers” that could spark strong demand well into 2021.
This comment is intriguing. There must be more than meets the eye going on here. For one, Zendesk has about a 20% exposure to travel and hospitality, two sectors hard hit by the Covied-19 lockdowns. Despite that, shares of ZEN are up 35% since Bracelin’s May 1 report. For Bracelin to advise Piper Sandler clients to “begin building positions in [ZEN] ahead of a recovery based on a compelling risk/reward profile” after that rally, there must be some exceptionally good things coming down the pike.
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And indeed, there are. Based on Bracelin’s estimates, Zendesk should hit a price target of $123 within the next year, a full 62% higher than his previous target of $76. Only Piper clients are privileged to see Bracelin’s precise justifications for this move, but here are a few worth considering:
- While a portion of Zendesk’s portfolio was hurt by the Covid-19 lockdowns, the new emphasis on work-from-home telecommuting, virtual office spaces, and online business models feeds into Zendesk’s wheelhouse of online customer service solutions.
- Late last month, Zendesk debuted a new, high-end analytics solution for customer relationship management (CRM) called Explore Enterprise. This fast, real-time assessment tool for CRM tickets will fill a huge need experienced by companies that have moved their customer relations online but don’t yet have the proper tools to analyze where problems are coming from and what might be the proper solutions. Zendesk customer Mailchimp, an email marketing service, is using a prototype of Explore Enterprise and had this to say about the tool: “We’re able to take that cumulative voice of the customer and distill that down to what needs to be prioritized and make meaningful fixes that happen.”
- According to finance website Insider Monkey, hedge funds have never been as bullish as they are right now on ZEN. The number of funds owning shares rose to 63 from 55 by the end of June this year (first quarter to second quarter), an all-time high.
- Zendesk’s largest competitor, Salesforce (CRM), recently reported earnings that handily beat Street estimates. It also raised its forward revenue forecasts not only for this fiscal year but for 2021/22 as well. This bodes well for Zendesk when it reports earnings at the end of October.
- According to Zacks Investment Research, which holds a “buy” rating on ZEN, the expected three-year earnings growth rate of Zendesk is 57%, which is in the top 5% of cloud-sector stocks.
- Last month, Motley Fool issued a buy recommendation on ZEN, noting especially the company’s exponential growth in revenue (to $872 million today from $190 million in 2016). In the report, the Fool stated, “(With) a growing suite of automated and personal solutions, this is a company whose clients will increasingly need its services — especially clients that are themselves prepared to be growth drivers for the broader economy looking ahead.”
Action to Take: It’s not too late to jump on this bandwagon. Consider buying shares of ZEN up to a price of $99 and look to start selling at around $150.
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Dec 14th, 2020