Most technology companies have been benefiting from an accelerated pace of digital transformation thanks to the COVID-19 pandemic. While a vaccine-driven economic recovery is expected to lead to a degree of trend reversal this year, many analysts predict the continuation of certain trends that will sustain the demand for tech offerings.
Companies that stayed afloat amid the pandemic by having their employees work remotely are now planning to make that structure permanent because they are experiencing higher productivity. Hence, the demand for new technology solutions for companies to maintain operations, stay connected with employees, and keep their people productive should keep rising.
This year could see more IT spending on cloud and edge computing infrastructure to make remote work more efficient and accessible. This, we believe, would give a boost to Paychex, Inc. (PAYX), and Akamai Technologies, Inc. (AKAM), both of which underperformed the broader market in 2020.
Paychex, Inc. (PAYX)
PAYX is a leading provider of integrated human capital management solutions for human resources (HR), payroll, benefits, and insurance services. By combining its innovative software-as-a-service technology and mobility platform, PAYX empowers small- and medium-sized business owners in the U. S. and Europe to ease HR administration for their business.
PAYX recently announced that it is offering human resource management solutions via a new integration with Fiserv’s (FISV) Clover platform. The integration enables business owners using Clover integrated with Paychex Flex to simplify payroll and time and attendance management through the Clover App. In addition , the company recently introduced additional enhancements to its platform to help clients manage risk, stay compliant, better assess performance, and adapt to mobile and artificial intelligence-driven trends.
PAYX’s revenue and EPS grew at a CAGR of 7.6% and 9.7%, respectively, over the past three years. In its fiscal second quarter ended November 31, 2020, PAYX reported total service revenue of $968.9 million, consistent with the prior year period. Management Solutions revenue was $732.8 million for the second quarter, an increase of 1% compared to the prior year period. The growth was driven primarily by increases in its client base and increased penetration of its suite of solutions. Its adjusted EPS for the quarter was $0.73, rising 4% year-over-year.
PAYX’s platform its clients to integrate with essential business systems directly. This was evident and supported by a high customer retention rate during the pandemic. In addition, the company’s margins have demonstrated sequential improvement in the trailing two quarters due to its cost-saving initiatives. Wall Street analysts estimate PAYX’s current-year revenue and EPS to increase 5.9% and 7.1%, respectively, year-over-year.
PAYX has gained 3.4% in the past year compared to the S&P 500’s 16% returns. However, the stock is up 22.5% in the past six months to close yesterday’s trading session at $88.07. The stock had hit a record high of $99.95 after reporting the second-quarter results on December 23, and is presently trading just 11.9% below it.
How does UMC stack up for the POWR Ratings?
B for Trade Grade
B for Buy & Hold Grade
B for Industry Rank
B for Overall POWR Rating
The stock is also ranked #27 of 55 stocks in the Outsourcing - Business Services industry.
Akamai Technologies, Inc. (AKAM)
AKAM specializes in global content-delivery-network (CDN) services and provides cloud services to deliver, optimiz, and secure content and business applications over the internet in the United States and internationally. Akamai's intelligent edge platform offers agile solutions that extend the power of multi-cloud architectures. The company operates through two divisions – Web Division, and Media and Carrier Division.
AKAM recently announced a new Akamai Partner Program that significantly expands and supports channel partners' ability to deliver high-value services to their customers. In December, Telenor Myanmar announced that it is using Akamai's Security and Personalization Services (SPS) Shield product to help protect its subscribers from a host of cyber security threats. Moreover, AKAM acquired Asavie in October to advance its 5G strategy. Asavie’s global platform manages the performance for mobile and internet-connected devices.
Over the past three years, AKAM’s revenue and EPS have grown at a CAGR of 8.5% and 27.3%, respectively. Revenues for the last reported quarter ended September 30, 2020 improved 12% year-over-year to $793 million, primarily driven by contributions from its security products and sustained high traffic levels on the Akamai Edge platform. Its Cloud Security Solutions revenue was $266 million, up 23% year-over-year. And its non-GAAP EPS came in at $1.31, rising 19% compared to the year-ago value.
AKAM has benefited greatly from the robust tech and cloud computing growth amid the pandemic because it specializes in edge computing, which speeds up content delivery. Second, the rise in online activities also calls for extensive cybersecurity services, leading to a surge in web server demand and other AKAM’s services. Consequently, analysts expect the company’s current year revenue and EPS to rise 6.6% and 5%, respectively, year-over-year.
AKAM has gained 9.5% in the past year compared to the S&P 500’s 16% returns. The stock is up 42.8% in the past three months to close yesterday’s trading session at $102.85. In addition , it is currently trading just 14.3% below its 52-week high of $120.00.
According to the POWR Ratings, AKAM has been accorded a “B” for Buy & Hold Grade. In the 81-stock Technology - Services industry, it is ranked #41.
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UMC shares were trading at $8.85 per share on Friday afternoon, down $0.66 (-6.94%). Year-to-date, UMC has gained 4.98%, versus a 0.69% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies.
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