Splunk Inc. SPLK benefits from healthy customer engagement evidenced by consistently high net retention and competitive win rates alongside solid momentum with large orders overall. Its earnings estimates for the current fiscal year are up a stellar 412.7% over the past year, while those for the next fiscal year are up 85.4%, indicating solid inherent growth potential. With healthy fundamentals, this Zacks Rank #1 (Strong Buy) software solutions provider appears to be a solid investment option right now. You can see the full list of today’s Zacks #1 Rank stocks can be found here.
growth accelerator
Based in San Francisco, California, Splunk provides software solutions that enable companies to gain real-time operational intelligence by leveraging the value of their data. The company’s offerings enable users to explore, monitor, analyze and act on machine and big data, regardless of format or source, and aid in operational decision-making. The company’s software has a wide range of applications, including security analysis, business analysis and IT operations. The valuable machine and big data insights enable users/enterprises to improve service levels, reduce operational costs, mitigate security risks and maintain compliance. This enabled the company to strengthen its market position.
Splunk’s software can be deployed in a variety of computing environments, from a single laptop to large, globally distributed data centers, as well as public, private and hybrid cloud environments. The company’s top line benefits from high demand for its cloud solutions. Splunk’s enterprise security (ES) solutions also show promise. Users use ES to centralize security management on a single platform and better manage the large data volume of their security operations center. It also benefits from the ongoing security threats and exchange cycle for information and event management. Additionally, the company’s integration with the Amazon Web Services (AWS) security hub to help customers more quickly detect, investigate, and respond to potential threats in their AWS security environment should be a key catalyst in the long run.
Additionally, Splunk’s aggressive acquisition strategy has played a crucial role in the company’s development over the past several years. The SignalFx acquisition has enabled the company to establish itself as a leader in cloud monitoring and application performance monitoring for enterprises migrating to the cloud. The VictorOps buyout helps the company meet the needs of DevOps, a rapidly growing area of software development. The Phantom Cyber acquisition helped add security orchestration, automation and response to Splunk’s portfolio. The acquisition of Rocana has strengthened the company’s machine data platform. Splunk is expected to continue pursuing acquisitions to expand its portfolio and increase market share over the long term.
The company’s business transition from perpetual licenses to subscription or renewable models is expected to benefit it over the long term. Splunk is seeing an increase in the number of renewable term contracts, which is tailwind. Annual recurring cloud revenue (ARR) grew 33% year over year to $1.78 billion in the fourth quarter of fiscal 2023. The company had 790 customers with ARRs greater than $1 million.
The company delivered an earnings surprise averaging 131.1% over the past four quarters and has a long-term earnings growth expectation of 24.1%.
Other key picks
Arista Networks, Inc. ANET, with a Zacks Rank #1, is likely to benefit from strong momentum and diversification across its top verticals and product lines. The company takes a software-driven, data-centric approach to helping customers build their cloud architecture and improve their cloud experience. Arista has a long-term earnings growth expectation of 17.5% and has delivered an earnings surprise averaging 12.7% over the past four quarters.
It occupies a leading position in the 100 Gigabit Ethernet switching share in the port for the high-speed data center segment. Arista is gaining market traction in 200 and 400 gig high-performance switching products and remains well positioned for healthy growth in the data-driven cloud networking business with proactive platforms and forward-thinking operations.
Juniper Networks, Inc. JNPR carries a Zacks Rank #2 (Buy). It has a long-term earnings growth expectation of 7% and has delivered an earnings surprise averaging 1.6% over the past four quarters.
Juniper leverages the 400 gig cycle to leverage hyperscale switching opportunities within the data center. The company will benefit from increasing demand for data center virtualization, cloud computing, and convergence of packet and optical data for mobile traffic.
Deutsche Telekom AG DTEGY, which has a #1 Zacks rank, is likely to benefit from the value-added post-merger integration of T-Mobile US Inc. and Sprite in the United States, in which it owns about 43%. The abolition of compulsory cable TV access in apartment buildings in Germany through telecom legislation should help Deutsche Telekom expand its broadband market.
In addition, an aggressive fiber optic rollout strategy across the country is expected to strengthen the domestic market position. The Zacks Consensus estimate for Deutsche Telekom’s year-to-date earnings was revised up 21.8% last year. It has an A VGM score and a long-term yield growth expectancy of 15.7%. The stock is up 38% over the past year.
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