Tech Keeps Beating Estimates as Lockdown Drives Growth: Earnings This Week

Tech Keeps Beating Estimates as Lockdown Drives Growth: Earnings This Week

Technology stocks continue to lead a small group of companies doing well amid the coronavirus lockdown.

Cisco Systems (CSCO), Square (SQ), Logitech (LOGI) and Datadog (DDOG) all reported strong quarterly results over the last week. Several are direct beneficiaries of employees working from home.

LOGI, the provider of computer peripherals like webcams and headsets, surged to new all-time highs after earnings and revenue blew past estimates.

“Video conferencing, working remotely, creating and streaming content, and gaming are long-term secular trends driving our business,” CEO Bracken Darrell said in the statement. “The pandemic hasn’t changed these trends: it has accelerated them.”

Logitech (LOGI), daily chart, with 50- and 200-day moving averages.
Logitech (LOGI), daily chart with 50- and 200-day moving averages.

SQ, which rose about 1,000 percent between mid-2016 and late 2018, had a remarkably similar quarter to PayPal (PYPL). Its initial numbers missed after gross payment volumes missed estimates. That was a result of lockdowns hurting commerce in general.

But then investors focused on strength in its Cash App. Profit more than doubled at the direct-payment service, which competes against PYPL’s Venmo. Both have emerged as beneficiaries of the shift toward e-commerce.

Analysts at firms like Citigroup, Barclays, Canaccord Genuity and Keefe Bruyette & Woods responded by hiking their price targets on SQ.

Cisco Systems

CSCO also benefited as remote workers used its services like WebEx and AnyConnect. However its legacy infrastructure business, which still accounts for most of its revenue, is struggling with the economic slowdown.

For the most part, Wall Street views CSCO as slowly transitioning from old hardware to newer software and services. The change could result in higher multiples if it’s successful, although there’s still a long way to go.

Square (SQ), daily chart, with 50- and 200-day moving averages.
Square (SQ), daily chart with 50- and 200-day moving averages.

DDOG, on the other hand, is already a pure-play software and services name. The 10-year old company rocketed to a new all-time high after earnings, revenue and guidance smashed estimates. Its business focuses on platform and infrastructure monitoring for IT operations teams.

Novavax Explodes Higher

Novavax (NVAX) also reported strong quarterly results, but its real news was a $384 million investment from the Coalition of Epidemic Preparedness Innovations. That was viewed as a major vote of confidence by the Bill Gates-backed organization, which is looking to develop a coronavirus vaccine.

Cardinal Health (CAH) was another medical company that rose on strong results. The drug distributor is in the midst of turnaround after years of weak pricing squeezed its core business. Despite an initial gain, it now faces weaker demand as coronavirus weighs on the broader health-care industry.

General Mills (GIS), the maker of products like Betty Crocker, Gold Medal flour and Totino’s frozen pizzas, is also benefiting from the stay-at-home trend. Earnings, revenue and guidance were all strong, lifting the stock to its highest level in over three years.

Novavax (NVAX), daily chart, with 50- and 200-day moving averages.
Novavax (NVAX), daily chart with 50- and 200-day moving averages.

Under Armour Crashes

Under Armour (UAA) had another bad quarter. The maker of athletic clothing was already struggling before coronavirus. Now the one-time growth stock is facing even greater pressure and increased competition from rivals like Nike (NKE). UAA has lost about two-thirds of its value in the last year.

Hertz Global (HTZ) missed estimates after a cutback in travel weighed on car rentals. Its stock is now pushing new all-time lows.

Jack in the Box (JACK) had weak earnings as coronavirus kept customers away from its restaurants. However its revenue beat estimates as customers spent more per visit. The company was shifting its business toward quicker service times and new products like Tiny Tacos. Investors seem to think that turnaround story will continue after the health crisis passes.

In conclusion, coronavirus remains a major headwind for the economy and stock market. While most companies are suffering from the slowdown in demand, a handful of technology firms like CSCO, SQ, LOGI and DDOG have benefited.

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