Say ‘COVID-19’ in a group of mixed company, and you are sure to spark a debate. But one thing is certain: The way our white-collar sector works has changed, perhaps for forever. Canadian banking giant RBC is calling it ‘Work 2.0,’ the sudden surge of telecommuting, remote work, and virtual office options that has impacted many desk and office jobs.
Describing the phenomenon, RBC analyst Matthew Hedberg believes that these remote work strategies are here to stay, and that an array of tech companies stand poised to gain from this expansion of the knowledge economy.
“As companies adapt to major structural changes with regard to how, when and where knowledge workers get business done, we see secular demand for these technologies supporting a long-term, durable growth narrative for nearly all modern vendors in this space, informing our call that is essentially a doubling down on the space,” Hedberg noted.
So let’s get to the nitty-gritty. Hedberg and his team have picked two tech companies that they believe are primed for gains in 2021. We used TipRanks’ database to find out what other Wall Street analysts have to say about the prospects of these two.
Datto Holding (MSP)
Moving to virtual offices has put a premium on efficiency, which in turn has managers looking for ways to streamline office operations. Jobs like data processing, server automation, HR and payroll, vendor and workforce management – these eat up a tremendous amount of time, and by hiring a managed service provider (MSP), a company can focus on its core work with peace of mind.
Datto Holding is a software company, offering IT products to the growing MSP sector. The company’s software offerings include cloud and SaaS products for network management, remote monitoring and management, professional services automation, and basic workplace functions such as file backup, protection, and syncing.
Datto went public late last year, in October. The company put 22 million common shares on the market at $27 each, and raised nearly $600 million.
Datto saw a net income of $10.1 million in 1H20, and has put together annual recurring revenue exceeding $500 million. In its third quarter of public trading, Datto reported $130.7 million in revenue, for an 11% year-over-year gain.
RBC's Matthew Hedberg, quoted above, is impressed with Datto’s development of its niche.
“We believe Datto is well positioned as an MSP pure-play vendor as SMBs continue to embrace digital processes and technology in their businesses and turn to MSPs for their evolving IT needs,” Hedberg noted.
Getting into detail, Hedberg adds, “Datto serves over 17,000 MSP partners out of a total and growing 125,000 MSPs. We believe that Datto is underpenetrated and well positioned to capitalize on this opportunity due to its integrated solution stack and differentiated MSP-centric approach, which enables it to build strong long-term relationships.”
In line with his comments, Hedberg rates MSP shares an Outperform (i.e. Buy) along with a $39 price target. This figure suggests room for 48% growth in the year ahead.
Hedberg represents the bullish view – Wall Street is somewhat more divided on this stock. There are 10 recent reviews, 5 to Buy and 5 to Hold, making the consensus rating a Moderate Buy. The average price target stands at $35, which implies ~34% upside from current levels.
VMware, Inc. (VMW)
Next up, VMware, is another software company. VMW exists in the cloud computing sector, providing cloud and virtualization services for x86 architecture. The company allows customers to run apps on any device through a common cloud platform.
The value of this product should be clear in a remove work ecosystem. VMware allows companies to virtualize their workspace, with a guarantee of functionality and support. That value has supported the company’s revenues, which held steady between $2.7 billion and $2.8 billion in the first three quarters of 2020 – which was in the midline of 2H19 revenue values.
VMW shares, however, have dipped recently, when the company announced earlier this month that long-time CEO Pat Gelsinger will be stepping down in February – and going to take over the helm at Intel. The company has established a search committee, headed by independent Board member Paul Sagan. In the meantime, CFO Zane Rowe has been named interim CEO.
Once again, Matthew Hedberg is watching this stock, and he is giving it a thumbs up. Considering the change at the top, Hedberg, writes, “[The] company has a deep bench and has navigated through significant change historically including when long-time CEO Paul Maritz stepped down and was replaced by Mr. Gelsinger in 2012… While a risk with executive change, VMware has a strong sales process and we continue to like their post-COVID/hybrid-cloud positioning that could benefit from some post-COVID pent-up enterprise demand in the 2H/21.”
To this end, Hedberg gives VMW shares an Outperform (i.e. Buy) rating, and his $190 price target indicates confidence in ~44% upside on the one-year time frame.
The Street largely seems to echo Hedberg’s positive sentiment. VMW's Moderate Buy consensus rating is based on 16 reviews, including 10 Buys and 6 Holds. Shares are priced at $132.30, and the average price target suggests an upside potential of 28% for the next 12 months.