Despite macroeconomic headwinds, the software industry has showed resilience through constant growth, innovation, and adaptability. This expansion is being driven by software application and business companies offering cost-effective solutions and specialized services.
Therefore, quality software stocks Microsoft Corporation (MSFT – Get Rating), Intuit Inc. (INTU – Get Rating) and Progress Software Corporation (PRGS – Get Rating) could be wise additions to your portfolio now. These stocks are B (Buy) rated in our POWR Ratings system.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the software industry.
The US software market revenue is expected to hit $338.20 billion this year. Also, the sector’s revenue is expected to grow at a 4.2% CAGR over the next five years to $414.70 billion by 2028.
The market for application development software is anticipated to grow at a CAGR of 20.6% until 2028. The global demand for application development software is growing due to technological advancements, mobile device adoption, and cloud computing, resulting in a higher demand for innovative, user-friendly applications.
Furthermore, the global business software market is expected to increase at an 11.2% CAGR until 2028, reaching $987.61 billion, driven by increasing digitization, cloud technical breakthroughs, and the growing demand to analyze large amounts of business data.
Moreover, investors’ interest in software stocks is evident from the SPDR S&P Software & Services ETF’s (XSW) 10.8% gains over the past month.
Let’s look at the fundamentals of the three above-mentioned software stocks.
Microsoft Corporation (MSFT – Get Rating)
MSFT develops, licenses, and supports software, services, devices, and solutions worldwide. The company operates in three segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing.
On November 22, 2023, MSFT announced it will expand its current digital infrastructure footprint in Quebec alongside new AI and cybersecurity skilling initiatives that will reinforce the province’s robust innovation economy, fuel high-value job creation, and help prepare the province for the new AI economy. MSFT will invest $500 million in expanding its hyperscale cloud computing and AI infrastructure in Quebec over the next two years.
This expansion will not only enhance the province’s technological capabilities but also attract more businesses and startups to leverage MSFT’s advanced cloud computing and AI services.
On October 31, 2023, MSFT and Siemens are expanding their collaboration by extending the benefits of generative AI to sectors throughout the world. As a first step, the companies are launching Siemens Industrial Copilot, a jointly created AI-powered assistant targeted at boosting human-machine collaboration in manufacturing.
Furthermore, the launch of the interface between Siemens Teamcenter software for product lifecycle management and Microsoft Teams will pave the road for the industrial metaverse to be enabled. It will make it easier for design engineers, frontline workers, and other teams across business functions to collaborate virtually.
MSFT’s trailing-12-month ROTA of 17.29% is significantly higher than the 0.07% industry average. Its trailing-12-month ROCE of 39.11% is significantly higher than the 0.99% industry average.
MSFT’s total revenue for the first quarter that ended September 30, 2023, increased 12.8% year-over-year to $56.12 billion. Its operating income increased 25% year-over-year to $26.90 billion. The company’s net income increased 27% year-over-year to $22.29 billion.
In addition, its EPS came in at $2.99, representing an increase of 27.2% year-over-year.
Street expects MSFT’s revenue to increase 14.7% year-over-year to $242.95 billion for the year ending June 2024. Its EPS is expected to grow 14.3% year-over-year to $11.21 for the same period. It surpassed EPS estimates in all four trailing quarters. Over the past year, the stock has gained 54.2% to close the last trading session at $377.85.
MSFT’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
MSFT has a B for Sentiment, Stability, and Quality. Within the B-rated Software – Business industry, it is ranked #12 out of 44 stocks. Click here for the additional POWR Ratings for Growth, Momentum, and Value for MSFT.
Intuit Inc. (INTU – Get Rating)
INTU provides financial management and compliance products and services for consumers, small businesses, self-employed, and accounting professionals in the United States, Canada, and internationally. The company operates in four segments: Small Business and self-employed, Consumer, Credit Karma, and ProTax.
On November 14, 2023, INTU, announced a variety of new innovations at its 10th QuickBooks Connect conference to better serve the accounting community and small business customers via Intuit’s QuickBooks online ecosystem. These new features include improved functionality for seamless connectivity with third-party apps, greater data analytics capabilities, and a simpler user interface.
On the same day, INTU announced a new strategic relationship with Allstate Health Solutions to provide enhanced insurance alternatives for QuickBooks Online Payroll users in time for open enrollment season.
This collaboration exemplifies QuickBooks’ mission of providing businesses and their employees with a comprehensive human capital management platform that allows them to manage their work, pay, and benefits in one location, as well as to create integrated experiences that save busy business owners time.
INTU’s trailing-12-month ROCE of 14.14% is significantly higher than the 0.99% industry average. Its trailing-12-month ROTA of 8.58% is significantly higher than the 0.07% industry average.
INTU’s net revenues for the fourth quarter ended July 31, 2023, increased 12% year-over-year to $2.71 billion. Its non-GAAP operating income increased 45% year-over-year to $627 million. The company’s non-GAAP net income increased 50.2% year-over-year to $467 million. Also, its non-GAAP EPS came in at $1.65, representing an increase of 50% year-over-year.
Analysts expect INTU’s revenue to increase 11.6% year-over-year to $16.03 billion for the year ending July 2024. Its EPS is expected to grow at 13.8% year-over-year to $16.39 for the same period. It surpassed EPS estimates in all four trailing quarters. Shares of INTU have gained 45% year-to-date to close the last trading session at $564.23.
It is no surprise that INTU has an overall B rating, equating to a Buy in our POWR Ratings system. It has a B grade for Growth, Sentiment and Quality. It is ranked #29 out of 132 stocks in the Software – Application industry.
Beyond what is stated above, we’ve also rated INTU for Stability, Value and Momentum. Get all INTU ratings here.
Progress Software Corporation (PRGS – Get Rating)
PRGS develops, deploys, and manages business applications. OpenEdge, Sitefinity, Kemp LoadMaster, Developer Tools, and DataDirect Connect are some of the company’s applications. It sells its products to end users, independent software vendors, original equipment manufacturers, and system integrators.
On November 2, 2023, PRGS has announced the release of Progress® Sitefinity® 15. Progress introduces additional generative AI (GenAI) functionality across the platform with this version, allowing marketers to produce tailored content at scale. Also, Sitefinity Integration Hub’s innovative no-code data connectivity instantly integrates to top MarTech platforms, allowing for unified customer profiles.
The new generative AI (GenAI) support in Progress® Sitefinity® 15 empowers marketers to not only create personalized content at scale but also optimize it based on real-time insights.
PRGS’ trailing-12-month net income margin of 11.65% is 558.7% higher than the 1.77% industry average. Its trailing-12-month ROCE of 19.35% is significantly higher than the 0.99% industry average.
PRGS’ revenue for the third quarter ended August 31, 2023, increased 15.7% year-over-year to $174.99 million. Its non-GAAP income from operations increased 13.8% year-over-year to $68.39 million. Its non-GAAP net income rose 10.6% year-over-year to $48.75 million. Also, its non-GAAP EPS came in at $1.08, representing an increase of 8% year-over-year.
The consensus revenue estimate of $694.23 million for the year ending November 2023 represents a 13.7% increase year-over-year. Its EPS is expected to grow 2.5% year-over-year to $4.23 for the same period. It surpassed EPS estimates in all four trailing quarters. The stock has gained 5.5% over the past month to close the last trading session at $53.51.
PRGS’ robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.