In light of the current market volatility resulting from the increased chances of continued interest rate hikes and concerns about a looming recession, investing in shares of companies with solid growth prospects could be wise for ensuring solid returns in the long run.
To that end, Eaton Corporation plc (ETN), F5, Inc. (FFIV), and Extreme Networks, Inc. (EXTR), which exhibit strong growth prospects, could be great additions to your portfolio this month.
Before delving deeper into the fundamentals of these stocks to understand what could help them deliver solid returns in the long run, let's see what’s keeping the market volatile.
While inflation eased for 10 consecutive months to remain below 5% in April, it still remains way above the level the Fed would like. The Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, heated up 4.4% year-over-year April, underscoring Fed Chair Jerome Powell’s warnings that reining in price hikes “is likely to be bumpy.”
Given the sticky inflation and the improvement in consumer confidence, the Fed may not be pausing its monetary policy tightening in its next meeting. This, along with the tight lending standards following the banking crisis, could push the economy into a recession later this year.
Let’s evaluate the fundamentals of the featured stocks.
Eaton Corporation plc (ETN)
Based in Dublin, Ireland, ETN is a power management company operating through various segments such as Electrical Americas and Electrical Global; Aerospace; Vehicle, and eMobility. It provides electrical components, industrial components, power distribution, pumps, motors, hydraulic power units, hoses and fittings, superchargers, engine valves, and valve actuation systems, etc.
On May 9, ETN revealed its ongoing commitment to expanding and enhancing its European eMobility business design capabilities, technologies, and operations. The company aims to provide comprehensive support to global manufacturers of electrified vehicles. These upgrades will support ETN’s efforts in delivering electric vehicle solutions to passenger cars, commercial vehicles, and off-highway OEMs globally.
ETN aims to strengthen its position as a trusted partner for OEMs seeking innovative and reliable electric vehicle solutions through these strategic enhancements.
On April 24, ETN acquired a 49% ownership stake in Jiangsu Ryan Electrical Co. Ltd., a prominent power distribution and sub-transmission transformers manufacturer in China. In 2022, Ryan generated approximately $100 million in revenue.
Howard Liu, the President of ETN's Asia-Pacific Region, Electrical Sector, expressed confidence in the partnership, highlighting the synergy between Ryan's exceptional product portfolio and Eaton's extensive global distribution network.
Moreover, the combined strengths of the two companies will enable them to provide effective solutions for the ongoing transition to renewable energy and increased electrical usage across various applications.
ETN’s net sales increased 13.2% year-over-year to $5.48 billion in the first quarter (ended March 31, 2023. The company’s adjusted earnings grew 16% from the prior-year quarter to $753 million and $1.88 per share, respectively. Also, its income before income taxes increased 23.1% from the year-ago value to $762 million.
During the same period, its total current assets amounted to $9.14 billion, up 4.5% compared to $8.75 billion for the period that ended December 31, 2022.
Streets expect ETN’s revenue and EPS for the second quarter (ending June 30, 2023) to increase 10.2% and 12.2% year-over-year to $5.74 billion and $2.10, respectively. Moreover, it surpassed the EPS estimates in each of its trailing four quarters, which is impressive.
ETN’s EBITDA and net income have increased at CAGRs of 5.7% and 6.5% over the past three years, respectively. Likewise, its EPS and levered FCF have improved at CAGRs of 7.9% and 27.5% over the same period, respectively.
ETN’s shares have gained 29% over the past nine months to close the last trading session at $179.04.
ETN’s POWR Ratings reflect this robust outlook. The stock has an overall A rating, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth, Sentiment, and Quality. In the 78-stock A-rated Industrial - Machinery industry, it is ranked #12. To see additional POWR Ratings of ETN for Value, Momentum, and Stability, click here.
F5, Inc. (FFIV)
FFIV provides multi-cloud application security and delivery solutions which enable its customers to develop, deploy, operate, secure, and govern applications in any architecture, from on-premises to the public cloud. Its offerings include F5 BIG-IP Software, F5 BIG-IP Systems, F5 BIG-IQ Centralized Management, F5 NGINX Software Solutions, F5 Distributed Cloud WAAP, and F5 Distributed Cloud Bot Defense.
On March 21, FFIV introduced multi-cloud networking (MCN) capabilities that enable seamless application and security services expansion across multiple public clouds, hybrid deployments, native Kubernetes environments, and edge sites. F5's Distributed Cloud Services offer unique advantages by providing connectivity and security solutions at both the network and application levels.
By offering a consolidated platform, FFIV aims to simplify the management and deployment of network services in complex multi-cloud environments, providing customers with enhanced control and flexibility.
In the same month, FFIV partnered with Visa Inc. (V), a global leader in digital payments, to assist merchants in enhancing the security of customer transactions while minimizing login friction. By joining forces, FFIV and V enable merchants to offer their customers a shopping experience that is both seamless and secure.
This collaboration focuses on delivering personalized customer experiences while ensuring robust protection against threats.
For the second quarter that ended March 31, 2023, FFIV’s total revenue increased 10.9% year-over-year to $703.18 million. Its gross profit rose 7.8% from the year-ago value to $547.52 million.
The company’s non-GAAP net income grew 17.4% and 18.8% from the prior-year quarter to $153.63 million and $2.53 per share, respectively. Also, its income from operations increased 42.1% from the year-ago value to $106.05 million.
The consensus EPS estimate of $2.86 for the third quarter (ending June 30, 2023) represents an 11.2% improvement year-over-year. The consensus revenue estimate of $699.79 million for the ongoing quarter represents a 3.8% increase from the same period last year. Additionally, it has a promising earnings surprise history, as it surpassed the EPS estimates in each of the trailing four quarters.
Its revenue has grown at a CAGR of 6.4% and 5.6% over the past three and five years, respectively, while its total assets have improved at a CAGR of 5.6% over the past three years.
Over the past month, the stock has gained 8.9% to close the last trading session at $146.25.
FFIV’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B for Growth and Value. Within the 50-stock Software - Business industry, it is ranked #2. Click here to see FFIV’s Momentum, Stability, and Sentiment rating.
Extreme Networks, Inc. (EXTR)
EXTR provides software-driven networking solutions worldwide. It designs, develops, and manufactures wired and wireless network infrastructure equipment; and develops software for network management, policy, analytics, security, and access controls. It offers services such as ExtremeCloud IQ, an ML/AI-powered, wired, and wireless cloud network management.
On May 10, EXTR announced that it was chosen by Living Tomorrow Innovation Campus, a pioneering experimental lab near Brussels, Belgium, to serve as its network connectivity partner. The collaboration aims to develop, evaluate, and validate state-of-the-art technology-driven experiences and products.
EXTR will work closely with Living Tomorrow, as well as a diverse network of customers, partners, and government agencies, to foster the creation of innovative products that have the potential to be widely adopted by 2030.
In the same month, EXTR unveiled various innovative networking solutions to disrupt existing norms. Among these offerings is the AP3000, which stands out as the industry's most compact and energy-efficient Wi-Fi 6E access point.
This access point caters to customers with budget constraints while delivering high-performance capabilities typically associated with enterprise-grade solutions. The AP3000 addresses the needs of users seeking a small networking solution without compromising performance.
EXTR’s total net revenues increased 16.5% year-over-year to $332.51 million in the third quarter (ended March 31, 2023), while its non-GAAP gross profit rose 18.6% from the year-ago value to $196.39 million.
The company’s non-GAAP net income amounted to $38.85 million and $0.29 per share, representing an increase of 41.7% and 38.1% from the prior-year quarter, respectively. Also, its non-GAAP operating income increased 45.9% from the year-ago value to $52.04 million.
Street expects EXTR’s revenue for the fourth quarter (ending June 30, 2023) to increase 23.4% year-over-year to $343.37 million. Its EPS estimate of $0.31 for the ongoing quarter is expected to improve by 106.7% year-over-year. The company has an excellent earnings surprise history, as it surpassed the EPS estimates in each of the trailing four quarters.
Also, its revenue and EBITDA have increased at CAGRs of 7.6% and 90.6% over the past three years, respectively, while its levered FCF has improved at a CAGR of 13.6% in the same period.
The stock has gained 111% over the past year to close the last trading session at $20.85.
It’s no surprise that EXTR has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It also has an A grade for Growth and Quality. Out of 50 stocks in the Technology – Communication/Networking industry, it is ranked #4.
In addition to the POWR Ratings we’ve stated above, we also have EXTR’s ratings for Value, Momentum, Stability, and Sentiment. Get all EXTR ratings here.
What To Do Next?
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ETN shares were trading at $187.04 per share on Friday afternoon, up $8.00 (+4.47%). Year-to-date, ETN has gained 20.37%, versus a 12.45% 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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