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Splunk vs Elastic: Which Tech Stock Offers Higher Upside Potential?

2021 began with a sell-off on the first trading day, but that won’t deter investors from looking for attractive additions to their portfolios. Several stocks in the tech sector touched
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The post Splunk vs Elastic: Which Tech Stock Offers…



2021 began with a sell-off on the first trading day, but that won’t deter investors from looking for attractive additions to their portfolios. Several stocks in the tech sector touched record highs last year as the pandemic further increased our reliance on technology. Remote working, virtual learning and e-commerce drove the demand for online tools, thus triggering rapid sales growth for several tech companies.

Does Wall Street expect the growth streak to continue? We will discuss analysts’ sentiment on Splunk and Elastic and use the TipRanks Stock Comparison tool to pick the better investment opportunity.

Splunk (SPLK)

First up is Splunk, which offers an array of solutions, including data analytics and monitoring, security and observability. Its growth over recent years has been supported by the organic expansion of its software offerings as well as tuck-in acquisitions. The company has transitioned to a subscription-based revenue model from the conventional perpetual licenses model.

Splunk shares took a major hit on Dec. 3 when it delivered lower-than-anticipated 3Q FY21 (ended Oct. 31) results and a weak outlook. The company’s 3Q revenue plunged 11% year-over-year to $559 million as an 80% growth in the cloud services revenue was more than offset by a 36% decline in its license revenue.

The company blamed the 3Q performance on challenging macro conditions that led to a lower-than-normal close rate on its largest deals. Splunk slipped into an adjusted loss per share of $0.07 from an adjusted EPS of $0.58 in 3Q FY20.

On the bright side, management highlighted that the company’s annual recurring revenue (ARR) grew 44% in 3Q and crossed the $2 billion milestone. Also, Splunk now boasts 444 customers with ARR greater than $1 million. As per the company, its cloud ARR growth rate of 71% was “among the highest growth rates in the industry.”  

Despite the 3Q disappointment, Rosenblatt Securities analyst Blair Abernethy initiated coverage of Splunk with a Buy rating last month, with a price target of $196. The analyst acknowledges the company’s leading position in various key, rapidly growing IT operations segments.

Abernethy believes that Splunk is well-positioned to take advantage of the secular shift from “monolithic enterprise applications towards dynamic multi-cloud IT infrastructure.” (See SPLK stock analysis on TipRanks)

He noted that given Splunk’s rapidly expanding suite of integrated products, its total addressable market (TAM) has grown significantly over recent years to $81 billion. That figure includes a market opportunity of $17 billion in observability/DevOps, $17 billion in security and compliance, $28 billion in IT operations and $19 billion for the platform. Currently, the company’s ARR represents just about 2% of the TAM.  

Abernethy expects Splunk to deliver 38% ARR growth in FY21 and 34% in FY22. Finally, he pointed out that with an EV/S (enterprise value/sales) multiple of 12.1x (based on FY21 sales estimate), the stock’s valuation stands at the low end of comparable high growth enterprise software vendors.

Turning to the rest of the Street, 18 Buys, 10 Holds and 1 Sell add up to a Moderate Buy analyst consensus. Given the modest 4.6% rise in shares over the past year, the average price target of $205.74 indicates an upside potential of 27.3% from current levels.

Elastic N.V. (ESTC)

Enterprise search and data analytics company Elastic looks quite small compared to the tech giants but its rapid pace of growth is attracting Wall Street’s attention. Aside from its search tools, the company is also gaining traction through its observability and security solutions.

Elastic had 12,900 subscription customers as of 2Q FY21 (ended Oct. 31), reflecting 33% year-over-year growth. It currently has over 650 customers with an annual contract value of more than $100,000.

Like several other tech companies in the growth phase, Elastic is not profitable yet. That said, robust revenue growth is helping in trimming down its losses. In 2Q FY21, the company brought down its adjusted loss per share to $0.03 from $0.22 in 2Q FY20, thanks to a 43% gain in revenue to about $145 million. (See ESTC stock analysis on TipRanks)

Covering Elastic for Oppenheimer, analyst Ittai Kidron reiterated a Buy rating on the stock on Jan. 6. Elastic is among Oppenheimer’s top picks and Kidron is optimistic about “its growing platform breadth and its Elastic Cloud-first approach, priming the pumps for continued strong customer growth, net expansion improvement, and deeper account penetration as Observability and Security use cases gain momentum.”

Kidron highlighted catalysts like the increased focus on Elastic Cloud (given the 81% SaaS revenue growth in 2Q to $37.4 million), “ability to drive new use case adoption and higher tier use,”  the enormous untapped opportunity in security solutions and the stronger-than-anticipated net expansion potential as sales productivity returns to pre-COVID levels.

The stock’s valuation is compelling, in Kidron's opinion, given that it currently trades at about 18.0x his calendar year revenue estimate and at a discount to similar high-growth peers, which are trading at a valuation of about 25.0x. Kidron upped his price target for the stock to $170 (upside potential of 19.7%) from $140.

The rest of the Street echoes Kidron’s optimism on Elastic, as reflected by the Strong Buy analyst consensus backed by 9 unanimous Buys. With shares rising a whopping 109.4% over the past year, the average price target of $155.22 indicates an upside potential of 9.3% in the 12-months ahead.


Rapid digitization and the shift to the cloud are expected to continue to drive further growth for Splunk and Elastic. The Street is highly optimistic about Elastic’s strong execution and growth prospects over the long-term. That said, investors looking for higher upside potential in the near future could find Splunk more attractive.  

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment

The post Splunk vs Elastic: Which Tech Stock Offers Higher Upside Potential? appeared first on TipRanks Financial Blog.

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Industrial Production Increased 0.1% in February

From the Fed: Industrial Production and Capacity Utilization
Industrial production edged up 0.1 percent in February after declining 0.5 percent in January. In February, the output of manufacturing rose 0.8 percent and the index for mining climbed 2.2 p…



From the Fed: Industrial Production and Capacity Utilization
Industrial production edged up 0.1 percent in February after declining 0.5 percent in January. In February, the output of manufacturing rose 0.8 percent and the index for mining climbed 2.2 percent. Both gains partly reflected recoveries from weather-related declines in January. The index for utilities fell 7.5 percent in February because of warmer-than-typical temperatures. At 102.3 percent of its 2017 average, total industrial production in February was 0.2 percent below its year-earlier level. Capacity utilization for the industrial sector remained at 78.3 percent in February, a rate that is 1.3 percentage points below its long-run (1972–2023) average.
emphasis added
Capacity UtilizationClick on graph for larger image.

This graph shows Capacity Utilization. This series is up from the record low set in April 2020, and above the level in February 2020 (pre-pandemic).

Capacity utilization at 78.3% is 1.3% below the average from 1972 to 2022.  This was below consensus expectations.

Note: y-axis doesn't start at zero to better show the change.

Industrial Production The second graph shows industrial production since 1967.

Industrial production increased to 102.3. This is above the pre-pandemic level.

Industrial production was above consensus expectations.

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Fuel poverty in England is probably 2.5 times higher than government statistics show

The top 40% most energy efficient homes aren’t counted as being in fuel poverty, no matter what their bills or income are.




Julian Hochgesang|Unsplash

The cap set on how much UK energy suppliers can charge for domestic gas and electricity is set to fall by 15% from April 1 2024. Despite this, prices remain shockingly high. The average household energy bill in 2023 was £2,592 a year, dwarfing the pre-pandemic average of £1,308 in 2019.

The term “fuel poverty” refers to a household’s ability to afford the energy required to maintain adequate warmth and the use of other essential appliances. Quite how it is measured varies from country to country. In England, the government uses what is known as the low income low energy efficiency (Lilee) indicator.

Since energy costs started rising sharply in 2021, UK households’ spending powers have plummeted. It would be reasonable to assume that these increasingly hostile economic conditions have caused fuel poverty rates to rise.

However, according to the Lilee fuel poverty metric, in England there have only been modest changes in fuel poverty incidence year on year. In fact, government statistics show a slight decrease in the nationwide rate, from 13.2% in 2020 to 13.0% in 2023.

Our recent study suggests that these figures are incorrect. We estimate the rate of fuel poverty in England to be around 2.5 times higher than what the government’s statistics show, because the criteria underpinning the Lilee estimation process leaves out a large number of financially vulnerable households which, in reality, are unable to afford and maintain adequate warmth.

Blocks of flats in London.
Household fuel poverty in England is calculated on the basis of the energy efficiency of the home. Igor Sporynin|Unsplash

Energy security

In 2022, we undertook an in-depth analysis of Lilee fuel poverty in Greater London. First, we combined fuel poverty, housing and employment data to provide an estimate of vulnerable homes which are omitted from Lilee statistics.

We also surveyed 2,886 residents of Greater London about their experiences of fuel poverty during the winter of 2022. We wanted to gauge energy security, which refers to a type of self-reported fuel poverty. Both parts of the study aimed to demonstrate the potential flaws of the Lilee definition.

Introduced in 2019, the Lilee metric considers a household to be “fuel poor” if it meets two criteria. First, after accounting for energy expenses, its income must fall below the poverty line (which is 60% of median income).

Second, the property must have an energy performance certificate (EPC) rating of D–G (the lowest four ratings). The government’s apparent logic for the Lilee metric is to quicken the net-zero transition of the housing sector.

In Sustainable Warmth, the policy paper that defined the Lilee approach, the government says that EPC A–C-rated homes “will not significantly benefit from energy-efficiency measures”. Hence, the focus on fuel poverty in D–G-rated properties.

Generally speaking, EPC A–C-rated homes (those with the highest three ratings) are considered energy efficient, while D–G-rated homes are deemed inefficient. The problem with how Lilee fuel poverty is measured is that the process assumes that EPC A–C-rated homes are too “energy efficient” to be considered fuel poor: the main focus of the fuel poverty assessment is a characteristic of the property, not the occupant’s financial situation.

In other words, by this metric, anyone living in an energy-efficient home cannot be considered to be in fuel poverty, no matter their financial situation. There is an obvious flaw here.

Around 40% of homes in England have an EPC rating of A–C. According to the Lilee definition, none of these homes can or ever will be classed as fuel poor. Even though energy prices are going through the roof, a single-parent household with dependent children whose only income is universal credit (or some other form of benefits) will still not be considered to be living in fuel poverty if their home is rated A-C.

The lack of protection afforded to these households against an extremely volatile energy market is highly concerning.

In our study, we estimate that 4.4% of London’s homes are rated A-C and also financially vulnerable. That is around 171,091 households, which are currently omitted by the Lilee metric but remain highly likely to be unable to afford adequate energy.

In most other European nations, what is known as the 10% indicator is used to gauge fuel poverty. This metric, which was also used in England from the 1990s until the mid 2010s, considers a home to be fuel poor if more than 10% of income is spent on energy. Here, the main focus of the fuel poverty assessment is the occupant’s financial situation, not the property.

Were such alternative fuel poverty metrics to be employed, a significant portion of those 171,091 households in London would almost certainly qualify as fuel poor.

This is confirmed by the findings of our survey. Our data shows that 28.2% of the 2,886 people who responded were “energy insecure”. This includes being unable to afford energy, making involuntary spending trade-offs between food and energy, and falling behind on energy payments.

Worryingly, we found that the rate of energy insecurity in the survey sample is around 2.5 times higher than the official rate of fuel poverty in London (11.5%), as assessed according to the Lilee metric.

It is likely that this figure can be extrapolated for the rest of England. If anything, energy insecurity may be even higher in other regions, given that Londoners tend to have higher-than-average household income.

The UK government is wrongly omitting hundreds of thousands of English households from fuel poverty statistics. Without a more accurate measure, vulnerable households will continue to be overlooked and not get the assistance they desperately need to stay warm.

The Conversation

Torran Semple receives funding from Engineering and Physical Sciences Research Council (EPSRC) grant EP/S023305/1.

John Harvey does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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Southwest and United Airlines have bad news for passengers

Both airlines are facing the same problem, one that could lead to higher airfares and fewer flight options.



Airlines operate in a market that's dictated by supply and demand: If more people want to fly a specific route than there are available seats, then tickets on those flights cost more.

That makes scheduling and predicting demand a huge part of maximizing revenue for airlines. There are, however, numerous factors that go into how airlines decide which flights to put on the schedule.

Related: Major airline faces Chapter 11 bankruptcy concerns

Every airport has only a certain number of gates, flight slots and runway capacity, limiting carriers' flexibility. That's why during times of high demand — like flights to Las Vegas during Super Bowl week — do not usually translate to airlines sending more planes to and from that destination.

Airlines generally do try to add capacity every year. That's become challenging as Boeing has struggled to keep up with demand for new airplanes. If you can't add airplanes, you can't grow your business. That's caused problems for the entire industry. 

Every airline retires planes each year. In general, those get replaced by newer, better models that offer more efficiency and, in most cases, better passenger amenities. 

If an airline can't get the planes it had hoped to add to its fleet in a given year, it can face capacity problems. And it's a problem that both Southwest Airlines (LUV) and United Airlines have addressed in a way that's inevitable but bad for passengers. 

Southwest Airlines has not been able to get the airplanes it had hoped to.

Image source: Kevin Dietsch/Getty Images

Southwest slows down its pilot hiring

In 2023, Southwest made a huge push to hire pilots. The airline lost thousands of pilots to retirement during the covid pandemic and it needed to replace them in order to build back to its 2019 capacity.

The airline successfully did that but will not continue that trend in 2024.

"Southwest plans to hire approximately 350 pilots this year, and no new-hire classes are scheduled after this month," Travel Weekly reported. "Last year, Southwest hired 1,916 pilots, according to pilot recruitment advisory firm Future & Active Pilot Advisors. The airline hired 1,140 pilots in 2022." 

The slowdown in hiring directly relates to the airline expecting to grow capacity only in the low-single-digits percent in 2024.

"Moving into 2024, there is continued uncertainty around the timing of expected Boeing deliveries and the certification of the Max 7 aircraft. Our fleet plans remain nimble and currently differs from our contractual order book with Boeing," Southwest Airlines Chief Financial Officer Tammy Romo said during the airline's fourth-quarter-earnings call

"We are planning for 79 aircraft deliveries this year and expect to retire roughly 45 700 and 4 800, resulting in a net expected increase of 30 aircraft this year."

That's very modest growth, which should not be enough of an increase in capacity to lower prices in any significant way.

United Airlines pauses pilot hiring

Boeing's  (BA)  struggles have had wide impact across the industry. United Airlines has also said it was going to pause hiring new pilots through the end of May.

United  (UAL)  Fight Operations Vice President Marc Champion explained the situation in a memo to the airline's staff.

"As you know, United has hundreds of new planes on order, and while we remain on path to be the fastest-growing airline in the industry, we just won't grow as fast as we thought we would in 2024 due to continued delays at Boeing," he said.

"For example, we had contractual deliveries for 80 Max 10s this year alone, but those aircraft aren't even certified yet, and it's impossible to know when they will arrive." 

That's another blow to consumers hoping that multiple major carriers would grow capacity, putting pressure on fares. Until Boeing can get back on track, it's unlikely that competition between the large airlines will lead to lower fares.  

In fact, it's possible that consumer demand will grow more than airline capacity which could push prices higher.

Related: Veteran fund manager picks favorite stocks for 2024

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