Daniel Ives sees plenty of reasons to stay bullish on tech stocks; Here are 2 names to watch

Sentiment can change fast on Wall Street. Rewind back to early May and a triple whammy of soaring inflation, a hawkish Fed and ongoing macro concerns had the stock market – and the tech segment in particular – staring into the abyss. Or as Wedbush analyst Daniel Ives puts it, there was a feeling on the Street that in Q2, the tech sector was going to have the “’rug pulled out from under’ with earnings set to fall off a cliff.”

But not only has that not materialized, the June earnings season have even been a “major victory for the tech bulls” with enterprise spending and cloud driven budgets holding up, demand faring well in consumer product/e-commerce, and even digital advertising results coming in “much better than feared.”

While Ives expects many companies to still struggle during this “recessionary-like macro period,” he remains extremely bullish on tech in general.

“We believe the 4th Industrial Revolution tech trends are not going away due to this slower near-term period of growth over the next 6-9 months and we firmly stay bullish on tech stocks into the second half of the year,” explained the 5-star analyst.

So, with Ives comments as backdrop, let’s take a look at two tech names under his coverage for which he has high expectations. Using the TipRanks platform, we can also gauge the rest of the Street’s sentiment. Let’s dive in.

Fortinet (FTNT)

If we’re on the subject of tech, for any serious player in the field, cybersecurity is an essential component of its operations.

With its “FortiGate” product family being acknowledged as the most widely used network firewall in the world, Fortinet is a leader in cybersecurity and network solutions. Over the past few years, the company’s growth has been fueled by expansion from its core platform into sectors such as secure networking, zero trust access and cloud security. Along the way, the company has also participated in joint ventures and made several acquisitions of peers.

The growth was on tap again when the company released its 2Q22 earnings earlier this month.

Revenue increased by 28.6% year-over-year to $1.03 billion, just edging ahead of the analysts’ expectation for $1.027 billion. Adj. EPS of $0.24 bettered the year-ago quarter’s $0.19, whilst also beating the Street’s call for $0.22. Bookings rose by 42% YoY to $1.38 billion, and billings increased by 36% to $1.30 billion.

The print wasn’t pristine, however. The company guided for Q3 revenue in the range between $1.105 billion to $1.135 billion, at the mid-point just below Wall Street’s forecast for revenue of $1.13 billion. Investors did what investors do – and sent the shares down by 16% in the subsequent session.

That said, Wedbush’s Ives sees little reason for concern. Following a scan of the print, he wrote, “Demand continues to ramp for FTNT’s SDWAN solution set while the current backdrop accelerates cyber deal flow as the company’s product architecture continues to be a high-priority purchase for CIOs seeking to improve data servers while malware activity accelerates. Overall, while 3Q guidance was prudent, we believe FTNT has a strong pipeline of deal activity heading into the rest of the year and 2023. FTNT continues to operate in this sweet spot product cycle which is playing out along with the strength we are seeing in the field for the cyber security space despite dark macro clouds.”

To this end, Ives maintained an Outperform (i.e., Buy) rating, backed by a $76 price target. The implication for investors? Upside of 42% from current levels. (To watch Ives’ track record, click here)

Over the past 3 months, 21 analysts have reviewed FTNT’s prospects with 15 positioned in the bull camp and 6 remaining on the fence, all adding up to a Moderate Buy consensus rating. The average target is slightly below Ives’ objective; at $71.89, the figure makes room for one-year returns of 35%. (See Fortinet stock forecast on TipRanks)

Varonis Systems (VRNS)

Let’s stay in the realm of fending off cyber threats with our next Ives-endorsed name.

Varonis Systems is a U.S.-based software maker which provides data protection from cyber attacks both from outside and inside. The company has created a platform with the purpose of tracking, visualizing, analyzing and guarding unstructured data. As such, businesses can protect data that is kept both locally and in the cloud, including private emails and files, financial records, product and strategy plans, and other intellectual property.

Varonis prides itself on the patented technology used for its data security platform which the company believes gives it a competitive advantage, as well as in the technical knowhow and ability to keep improving and expanding its tech.

The company also recently released second quarter earnings, beating expectations both on the top-and bottom-line.

Revenue came in at $111.45 million, amounting to a 26% year-over-year uptick and just slightly above the $111.3 million expected on Wall Street. Adj. EPS of $0.00 also just beat the $-0.01 consensus estimate. Annual recurring revenue – a vital metric in the software space – increased by 30% year-over-year to $426.3 million. And for the full-year, the company reaffirmed its guidance of revenue between $485.0 million to $490.0 million.

That final point is one noted by Ives, who thinks that after a difficult start to the year, the company is gathering steam, despite ongoing Russia and FX issues.

“After the choppy March quarter, we can now see momentum build again in the field as the company takes market share and further penetrates its client base by increasing its licenses per customer,” the analyst explained. “Importantly, the cancellation of Russia was only ~1% of their business which was included looking forward in their guidance reiterating its ARR healthy growth of 25% – 26% y/y despite FX headwinds. The company again was still able to maintain its guidance figures despite the shutdown; we view this as a near-term noise maker and VRNS a core name to own in the cyber security space.”

Ives’ Outperform (Buy) rating is accompanied by a $40 price target, suggesting shares will climb 28% higher over the coming months.

And what about the rest of the Street? Varonis gets plenty of backing, as it happens. The ratings break down as 12 vs. 3 for the Buys over Holds, all culminating in a Strong Buy consensus rating. The average target is just a touch more bullish than Ives will allow; at $41.36, there’s room for 33% growth on the 12-month horizon. (See Varonis stock forecast on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.