Digital transformation of businesses and reliance on internet connectivity has been the primary investment driver in the software industry. Moreover, the sector is expected to remain buoyed by robust spending.
Given this backdrop, it might be the best time to invest in the fundamentally sound software stocks Fortinet, Inc. (FTNT), Check Point Software Technologies Ltd. (CHKP), Informatica Inc. (INFA), CSG Systems International, Inc. (CSGS) without any hesitation this year.
While the Fed’s progressive interest rate hikes and economic uncertainty continue to pressure various sectors, the software market is expected to reach more than $1 billion by 2025, making it clear that demand for software isn’t going away. With emerging trends in automation, industry clouds, and sustainability, the industry is poised to grow and expand its share of the overall tech market.
Organizations increasingly move toward digitalization, thereby fueling the upside for software companies. Gartner, Inc. (IT) forecasts the software segment’s global spending to rise 9.3% in 2023 to reach more than $850 billion. Also, the global software products market is projected to grow to $2.36 trillion in 2027, growing at a CAGR of 12%.
Thus, we think investors shouldn’t hesitate to add fundamentally strong software stocks FTNT, CHKP, INFA, and CSGS to their portfolios this year.
Fortinet, Inc. (FTNT)
FTNT offers comprehensive, integrated, and automated cybersecurity solutions internationally. It sells FortiGate hardware and software licenses, which enable a range of networking and security features. It also provides security subscriptions, technical support, and training services.
On March 1, the company introduced new specialized products and services for operational technology environments as an expansion of the Fortinet Security Fabric for OT. These new offerings extend and reinforce FTNT’s commitment to decrease cybersecurity risk for cyber-physical and industrial control systems.
On February 6, FTNT unveiled new ASIC technology, FortiSP5, to accelerate the convergence of networking and security across every network edge. FortiSP5 delivers unparalleled levels of power-efficient performance to open new frontiers for securing the branch, campus, 5G, edge computing, operational technologies, and more. This new introduction is expected to reap significant gains for the company.
For the fiscal fourth quarter that ended December 31, 2022, FTNT’s total revenue increased 33.1% year-over-year to $1.28 billion. Its non-GAAP operating income rose 52% from the prior-year quarter to $417.60 million. Non-GAAP net income attributable to FTNT and non-GAAP net income per share attributable to FTNT came in at $349.70 million and $0.44, up 69.9% and 76% from the prior-year period, respectively.
Analysts expect FTNT’s EPS and revenues to increase 52.9% and 25.9% year-over-year to $0.29 and $1.20 billion, respectively, for the fiscal first quarter (ending March 31, 2023). The company surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 25.2% over the past six months to close the last trading session at $60.84.
FTNT’s POWR Ratings reflect its solid prospects. It has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Quality and a B for Growth and Sentiment. The stock is ranked first of 21 stocks in the Software - Security industry. Click here to see the other ratings of FTNT for Value, Momentum, and Stability.
Check Point Software Technologies Ltd. (CHKP)
CHKP is a leading provider of cyber security solutions to corporate enterprises and governments globally. It offers network security, endpoint security, data security, and management solutions to enterprises, service providers, small and medium-sized businesses, and consumers.
Recently, the company launched Check Point Infinity Spark, a threat prevention solution that delivers industry-leading AI security and integrated connectivity to Small and Medium-Sized Businesses (SMBs). With a 99.7% malware catch rate, it offers threat prevention across networks, email, office, endpoint, and mobile devices, in one simple platform.
As SMBs adapt to the hybrid working model, this solution should be able to address the need for full coverage protection while improving employee productivity.
On February 13, CHKP introduced Check Point Quantum SD-WAN, designed to provide comprehensive prevention against zero-day, phishing, and ransomware attacks and delivers optimized routing for users and over 10,000 applications.
The new software blade combines the highest level of security with optimized network and internet connectivity to protect branch offices from the fifth generation of cyberattacks. Such high-security capability is expected to attract robust demand and boost the company’s revenues.
In the fiscal fourth quarter (ended December 31, 2022), CHKP’s total revenues increased 6.6% year-over-year to $638.50 million. The company’s non-GAAP operating income and non-GAAP net income increased marginally year-over-year to $288.90 million and $301 million, respectively. Also, its non-GAAP EPS came in at $2.45, representing an 8.9% year-over-year improvement.
The consensus EPS estimate of $1.73 for the fiscal first quarter (ending March 31, 2023) represents a 10.3% improvement year-over-year. The consensus revenue estimate of $569.11 million for the current quarter indicates a 4.8% increase from the same period in the prior year. The company has an excellent earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 7.6% over the past six months to close the last trading session at $126.58.
CHKP’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. It has an A grade for Quality. It is ranked #2 within the same industry.
Click here to see the POWR Ratings of CHKP (Growth, Value, Momentum, Stability, and Sentiment).
Informatica Inc. (INFA)
INFA is a leading enterprise cloud data management platform. It is an end-to-end, cloud-native Artificial Intelligence (AI)-powered Intelligent Data Management Cloud (IDMC) platform designed to assist businesses in pioneering their data on any cloud, multi-cloud, or hybrid system.
On February 28, the company launched the industry's only free cloud data loading, integration, and ETL/ELT service, Informatica Cloud Data Integration-Free and PayGo. This AI-powered solution is designed to provide simple, fast, and intelligent data integration to load, transform, and integrate data in minutes.
Chris Eldredge, Vice President of Data Office at Paycor, believes that such new products will open the door for data practitioners, including tech-savvy business users, to leverage best-in-class data integration tools from INFT, boosting its overall revenue.
Last year in November, INFA announced the expansion of its SaaS version of multidomain Master Data Management (MDM) with Microsoft Azure to service greater Asia Pacific and Japan markets due to the growing client demand for multitenant cloud MDM solutions. Given the increased reach of Microsoft Azure in the region, INFA could strategically benefit from this partnership.
During the fourth quarter that ended December 31, 2022, INFA’s subscription revenues increased 3.8% year-over-year to $238.36 million. Its non-GAAP income from operations stood at $113.66 million, up 19.5% from the prior year’s quarter.
In addition, its non-GAAP net income increased 27.1% year-over-year to $68.63 million, while its non-GAAP net income per share rose 20% from the year-ago value to $0.24. Also, the company processed nearly 53 trillion cloud transactions per month, up 91% year-over-year.
For the fiscal second quarter (ending June 2023), INFA's EPS is expected to increase 10% year-over-year to $0.18. Street expects its revenue to increase 3.2% year-over-year to $384.05 million in the next quarter. Moreover, the company surpassed the EPS estimates in each of the trailing four quarters, which is excellent.
Shares of INFA have gained 4.4% year-to-date to close the last trading session at $17.
It is no surprise that INFA has an overall rating of B, which translates to Buy in our proprietary rating system. It also has a B grade for Growth, Value, Stability, and Quality. Out of 24 stocks in the Software - SAAS industry, it is ranked first.
In addition to the POWR Ratings I’ve just highlighted, you can see the INFA ratings for Momentum and Sentiment here.
CSG Systems International, Inc. (CSGS)
CSGS is a global leader in providing customer engagement, revenue management, and payment solutions. The company offers integrated real-time revenue management platforms leveraging the public cloud, private cloud, or on-premises deployments to optimize and monetize transactions at every customer lifecycle stage.
On February 22, CSGS announced the first deployment of its joint solution with Axiata Digital Labs (ADL) at Namibia’s leading mobile operator. Built on TM Forum Open API standards, the solution from CSG and ADL offers flexibility and scalability to support multiple Communications Service Provider (CSP) business models while simplifying operational complexities and reducing costs under one platform.
Ian Watterson, SVP and head of APAC, CSGS, said, “With our joint solution, customers can take advantage of our cloud-based platform to create powerful partner ecosystems, deliver future-forward digital offerings and provide a customer experience that is second to none.”
In the same month, CSGS' Board of Directors raised its quarterly dividend by 6% to $0.28 per share of common stock, payable to its shareholders on March 30, 2023. This marks the 10th consecutive year of increased payout and reflects its improved performance.
CSGS' revenue increased 5.4% year-over-year to $289.88 million in the fiscal fourth quarter (ended December 31, 2022). Its non-GAAP operating income came in at $45.16 million, up 12.5% year-over-year.
The company’s net income grew 16.8% from the prior-year quarter to $20.15 million, while its non-GAAP EPS increased marginally from the year-ago value to $0.84. Additionally, its non-GAAP adjusted EBITDA stood at $60.06 million, representing a 7.2% increase year-over-year.
The consensus EPS estimate of $0.96 for its fiscal first quarter (ending March 2023) represents a 12% improvement year-over-year. The consensus revenue estimate of $269.85 million for the ongoing quarter indicates a 9.5% increase from the same period the prior year. CSGS surpassed the consensus revenue estimates in three of the trailing four quarters.
Over the past six months, the stock has gained marginally to close its last trading day at $57.10.
CSGS' strong fundamentals are reflected in its POWR Ratings. The company has an overall A rating, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Growth and a B for Stability, Sentiment, and Quality. Among the 52 stocks in the Software – Business industry, it is ranked #3.
To see the POWR Ratings of CSGS for Value and Momentum, click here.
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FTNT shares were trading at $61.49 per share on Monday morning, up $0.65 (+1.07%). Year-to-date, FTNT has gained 25.77%, versus a 6.24% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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