Ticker Reports for July 9th
Commvault Stock: AI Cybersecurity Giant Ready to Double Again
Commvault Systems (NASDAQ: CVLT) share price nearly doubled in the last nine months because of its utility and appeal for business. The company is a leading data protection and recovery service focused on fighting AI-driven threats. AI-powered threats are the most insidious of cyber threats because they can slip in undetected and wreak havoc across a network. Commvault’s products and services use AI to fight AI, providing quicker detection, response, and recovery of backed-up data. Because AI is in its earliest phases and cybersecurity is only going to become more necessary, Commvault should continue to see demand drive growth.
Commvault Is in Rally Mode but Overdue for a Price Correction
Commvault stock is in rally mode and can rise another 100%, but it is unlikely to do so in a straight line. The latest quarterly results catalyzed the market and sent it to a new high, but it is in a precarious position now and set up to correct. The price for CVLT shares is 2.5% above the 30-day EMA and more than 15% above the 150-day EMA, setting it up for a significant 10% to 20% fall that could come soon.
The technical indications include overbought conditions and momentum divergences that suggest the market is overextended and weak at current levels. A move to lower price points would be healthy and allow the market to regroup for another push higher. The next catalyst for the market will be the FQ1 results due at the end of July. The analysts have trimmed their targets so the consensus aligns with the company guidance, which was cautious given the environment.
The FQ4 results were solid and included strength on the top and bottom lines. The company grew 10% system-wide on a 27% gain in subscriptions, proving that the shift to the SaaS model is working. Subscriptions grew to nearly 54% of the revenue and are expected to continue taking share in FQ1 and the full year of fiscal 2025. The salient point is that the company is growing and widening its margins, driving sufficient cash flow and free cash flow to sustain and improve its balance sheet.
At the end of F2024, balance sheet highlights include a cash build, increased assets, reduced debt, and a 50% increase in shareholder equity. The company hasn’t paid a dividend yet but may in the future. Until then, it buys back shares and is building leverage for investors. The basic share count is down compared to last year and is expected to fall in fiscal 2025. The only downside is that dilution remains a risk; the company has ample shares to sell if needed, and there are convertible debts.
Insiders Sell, Institutions Buy Commvault
Insiders have been selling Commvault stock this year, but there are mitigating factors that make it a non-event. The insiders own a small 1% of the company, sales are related to share-based compensation, the insiders are selling into a strong rally, and the institutions are buying. Institutional activity more than offsets the insiders and has been net bullish for the last three quarters, aligning with the rally to new highs. Given an attractive opportunity, they own nearly 95% of the floating stock and may be expected to continue buying and ramp activity.
Analysts are supporting the market, so any correction that comes will likely be shallow and short-lived, provided no change in the outlook. Analysts have lifted the sentiment to Moderate Buy from Hold in the last six months and increased the consensus price target reported by MarketBeat.com by 75%, 5% since the last report. The fresh targets lead to the high end of the expected range and include the new high of $140. KeyCorp set the $140 target in early July, implying a 15% upside for this market.
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Intuit Stock Ready to Soar: RBC Sees Big Upside with GenAI
Intuit (NASDAQ:INTU) is seated in the technology sector and specializes in providing tax and small-business accounting software. RBC Capital recently initiated coverage on the company, setting a price target of $760, implying a 15% upside from the current price. Lead analyst Rishi Jaluria believes the firm can monetize GenAI across its products. Let's take some time to understand Intuit’s business and break down RBC's bullish argument.
Intuit’s Products and Market Dominance
Intuit has four main products: TurboTax, Credit Karma, QuickBooks, and MailChimp. TurboTax is a software and service for filing tax returns. Credit Karma provides access to credit scores and reports and helps track personal finances. QuickBooks is small business accounting software, and MailChimp is an email marketing platform for creating and tracking email campaigns.
Intuit operates as four reportable segments: Small Business & Self-Employed, Consumer, Credit Karma, and ProTax. The Small Business & Self-Employed segment sells QuickBooks and MailChimp, making up 56% of total revenue. TurboTax is in the Consumer segment, making up 29% of total revenue.
The company’s TurboTax platform managed 28% of IRS returns last year. The firm had a 70% market share amongst those who chose to file their returns without professional help. QuickBooks controls 81% of the small business accounting market share. This market is currently worth $20 billion and is expected to grow by 9.2% annually until 2029.
Breaking Down RBC’s Bull Case for Intuit
Intuit's powerful market shares are one reason Jaluria believes the firm can greatly benefit from implementing GenAI. These market shares give them access to massive amounts of data, which they can use to train algorithms and deliver more value to their customers.
Regarding TurboTax, Benjamin Franklin's phrase applies well: "Nothing is certain, except death and taxes." Everyone must file their taxes, but almost no one is a tax expert. This can cause people to have a lot of questions when filing. RBC believes Intuit has a big opportunity to harness and monetize GenAI here. AI will allow the company's in-house human tax experts to provide faster and better answers to individual tax situations. Customers can also get questions answered directly by Intuit's GenAI.
This should lower costs and provide more value to customers, which should, in turn, keep those customers and drive them to use Intuit's other products.
Intuit Assist: Transforming Financial Services with Artificial Intelligence
Intuit Assist is the firm's new financial assistant, which will use GenAI's power. The platform is being implemented across all of Intuit's products. The firm hopes to drive cost reduction and improved insights into taxes, personal finance, small business accounting, and marketing intelligence.
We already have some data on customers utilizing Intuit Assist. In the firm's earnings call last quarter, CEO Sasan Goodarzi said that more than 24 million customers used Intuit Assist to explain their refund last year. Nearly half of Credit Karma's 40 million active users now have access to GenAI capabilities.
With Credit Karma, customers can have a conversation with Intuit Assist. For example, they can ask specific questions to understand why one credit card is a better option for them than another. Goodarzi emphasized that if these features were not helping with monetization, the company would not have rolled them out to so many customers.
Strong Quarterly Growth for Intuit: Revenue and EPS Increase
The firm grew revenues solidly in the quarter, up 12% from the previous year, and adjusted earnings per share (EPS) was up 11%. Growth in the Small Business & Self-Employed segment of 18% is particularly encouraging. This is the firm's largest and most consistent segment. It also has the highest operating margin in every quarter other than tax season. The Consumer segment revenue and margins spike in that quarter. Analysts expect net income to increase by 16% annually over the next three years.
When it comes to valuation, the firm's forward P/E ratio sits at 36, in the 66th percentile of the U.S. technology sector. Many analysts are bullish on the shares, with 22 out of 31 rating the company as a Buy or Strong Buy. But, most are not as bullish as RBC, with the average price target only implying an upside of 6%.
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The Elon Factor: Is It Enough to Keep Tesla Stock Moving Higher?
Many misconceptions about the stock market exist and are constantly growing. These are particularly abundant when the market is coming off of a low interest rate cycle, where easy money and a risk-on mentality can seriously blur investor filters when looking for a stock to justify an investment. Today, shares of Tesla Inc. (NASDAQ: TSLA) have driven the biggest misconception.
Investors are back to that great feeling of sitting on the green line. Tesla stock is now on its way to breaking even for the year, as its performance has been negative 6.2% for the past 12 months. Before July’s rally, the stock was down to a negative 37% performance, so yes, shareholders will feel a lot more confident that their Tesla investment will eventually turn a profit. But, while the company might eventually get there on its own merits, the recent rally didn’t come from Tesla’s merits.
The company’s eccentric Chief Executive Officer (CEO), Elon Musk, has been active lately on his social platform X (formerly Twitter). His recent expressions have been focused on signaling that Tesla stock’s price may be too low since it is looking to announce progress on its Optimus robot and Semi truck releases by August 2024; however, here’s the harsh reality investors need to keep in mind before believing everything they see in the internet.
Are Tesla's Drivers Asleep at the Wheel?
Not physical drivers, though that has been a trend as drivers use the vehicle's autopilot feature and catch a quick nap on the highway. Today, investors are focusing on the financial drivers, metrics to be specific, which look a lot different than what Musk has been suggesting on X.
In the first quarter of 2024, total deliveries for Tesla were 386,810. Though impressive, this figure represents a contraction of nearly 10% compared to the first quarter of 2023, which reported up to 422,880 deliveries. While the second quarter gave hope to investors looking to recover, that also proved disappointing.
Tesla's second-quarter 2024 deliveries were only 443,956. That was the accredited event behind the stock's ensuing 10% rally, as CNBC quoted that these deliveries were better than expected. However, these are also lower than the second-quarter 2023 deliveries of 466,140.
Another driver lagging Tesla stock is the level of profit per vehicle. The combination of lower deliveries and a price cut strategy to fight off new competitors in the market led analysts at Wells Fargo to cut their gross margin expectations further, which will negatively impact the company's net income and earnings per share (EPS).
Knowing that the perception of Tesla stock is far from the reality of what's happening under the hood, the question now becomes centered on figuring out what actually caused Tesla stock to go on a 10% tear in the past couple of weeks.
All Evidence Points to Rivian Stock, Not Tesla: Here's Why
The timing of this rally is interstin. Shares of Rivian Automotive Inc. (NASDAQ: RIVN) jumped by 63% in a single day as news hit the markets that Volkswagen would consider an investment of up to $5 billion in the electric vehicle company.
Transportation stocks like Volkswagen and RXO Inc. (NYSE: RXO) realize that they must invest in high-growth businesses to remain competitive in today’s market, which is mainly driven by technology stocks rather than operational efficiency.
Anyway, Tesla’s rally directly overlapped with Rivian’s rally as an extension of electric vehicle optimism. In other news, another player in the space, Lucid Inc. (NASDAQ: LCID), just reported that its own deliveries kicked off in the right direction. Up to 2,394 units were delivered in the second quarter of 2024, representing a 22% increase over the quarter before.
To separate itself further from Tesla, Lucid’s deliveries would show a 70% annual increase, compared to the 10% decline in Telsa’s yearly deliveries. Not to suggest one brand is better, but investors should understand that Tesla’s rally may have been founded on a weak leg.
This is what some call the Elon factor, where investors are now hoping for capital gains over the head of the CEO’s ability to pull a rabbit out of the hat. While he has done so in the past, when Tesla was a much smaller company, doing the same trick today, at $806 billion market capitalization, becomes a lot harder.
That is why analysts at The Goldman Sachs Group kept their price targets for Tesla stock at $175 a share, challenging a sell-off of around 31% from where the stock trades today. But these analysts aren’t the only ones on Wall Street willing to put their money where their view is.
Hedge funds are reportedly getting ‘stung’ by Tesla’s rally. According to Bloomberg, the percentage of hedge funds shorting Tesla stock has risen to nearly 18%, up from 13% in January 2024.
While this represents a pain point for these short sellers, investors need to remember that these institutions have enough buying power to weather a 10% rally against them. Don’t expect them to bail on their shorts that easily, especially when the fundamental picture backs them.
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