Application software companies see opportunities in a difficult economy

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The application software market is threatening a recession that will hit the technology sector, but core opportunities remain for companies in areas where corporate spending is viewed as resilient in the coming months.

That is the Analyst opinion from Citi, where analysts have recently begun or repeated coverage of nearly two dozen software companies considered exceptionally “quality” in the current economic environment.

“We favor names that could experience increased demand priority and can deliver solid ROI [return on investment] with short amortization periods, [and] a proven track record of executing sales,” said Citi analyst Steven Enders in a report on the broker’s new stance on application software. “We also favor near-term quality, strong margin profiles, and sustained growth.”

With that in mind, Enders said that Citi’s “Favorite Opportunities” include buy recommendations for the following companies:

• Ceridian HCM Holding (CDAY), reporting “moderate growth” and “business expansion.”
• Workiva (WK), due to its stability in core financial reporting and automation platforms.
• intuition (NASDAQ: INTU), which is proving resilient in part due to a recent price increase of its QuickBooks accounting products.
• Instructure Holdings (INST), which Enders says benefits from being the “best-in-class” name in education technology with a stable base of elementary school, elementary school and college customers.
• Crate (NYSE:BOX), as it “transformed after inconsistent performance in recent years” following its IPO.
• Paycom Software (PAYC), which Enders says has established itself with a “differentiated automation and self-service” software offering.
• Monday.com (NASDAQ:MNDY), due to its “flexible, collaborative approach” to cloud-based enterprise software.
• Coupa software (NASDAQ:COUP), which sees its spending management platform under scrutiny, but likely “a potential for [business] reacceleration” with new offers in supply chain and supplier management.
• Expensify (EXFY) on an “attractive valuation” and opportunities in the small and medium business market.

“[We] found what we think is more resilient [spending] environment than expected.”

Enders added that the market for businesses, sometimes referred to as “back-office software,” should continue to benefit from industry moves towards more transitions to cloud-based business scenarios and the ongoing automation of multiple business services.

Along with the companies Enders said were Citi’s top picks, the brokerage also began reporting on Appian (`PN), Asana (ASAN), Blackline (BL), Dropbox (DBX), OpenText (OTEX), Paycor (PYCR), Paylocity (PCTY). ), Pegasystems (PEGA), Workday (WDAY) and Vertex (VERX) and reporting on Smartsheet (SMAR), all with neutral ratings.

Last week, several cloud software stocks received a boost after a bullish earnings report from Snowflake (SNOW) suggested that the data warehousing market in particular will remain strong.