Avaya a very attractively valued defensive stock for October
October is expected to be a bad month for most technology stocks due to the earnings recession, but the bright spots in the sector are software and IT services. Avaya sits in both those categories (primarily software). Down roughly 30% since its IPO this time last year, Avaya is surprisingly inexpensive at close to its all-time low. Its RSI is recovering from oversold. The fundamental analysts at S&P Capital IQ rate Avaya as highly undervalued.
In my opinion, Avaya has potential earnings catalysts ahead. The company has operated at a GAAP loss in 2019 (-$480 million at the midpoint of guidance), but this was mostly due to a one-time impairment charge due to stock price weakness. On the whole the company is profitable and has positive cash flow. Avaya expects to report a profit this quarter 4 times higher than the same quarter last year ($44 million at the midpoint of guidance, compared to $11 million last year). The company has consistently beaten the pants off analyst estimates on its earnings reports. Last quarter Avaya signed two big government contracts and also reported that it was working with Intel's AI division to improve the conversational intelligence of its software.
On September 20, Avaya got some big bullish call options activity. Perhaps this was in anticipation of its September 24 news release, "New Innovations Unveiled For Avaya IX™ Contact Center Portfolio." I have to admit, investor response to this release has been underwhelming. However, the stock could get a boost when Avaya showcases its new product features at GITEX Technology Week in Dubai on October 6-10. In any case, I expect a technical recovery from oversold levels and a mid-term improvement in the stock price on the strength of strong guidance.
In my opinion, Avaya has potential earnings catalysts ahead. The company has operated at a GAAP loss in 2019 (-$480 million at the midpoint of guidance), but this was mostly due to a one-time impairment charge due to stock price weakness. On the whole the company is profitable and has positive cash flow. Avaya expects to report a profit this quarter 4 times higher than the same quarter last year ($44 million at the midpoint of guidance, compared to $11 million last year). The company has consistently beaten the pants off analyst estimates on its earnings reports. Last quarter Avaya signed two big government contracts and also reported that it was working with Intel's AI division to improve the conversational intelligence of its software.
On September 20, Avaya got some big bullish call options activity. Perhaps this was in anticipation of its September 24 news release, "New Innovations Unveiled For Avaya IX™ Contact Center Portfolio." I have to admit, investor response to this release has been underwhelming. However, the stock could get a boost when Avaya showcases its new product features at GITEX Technology Week in Dubai on October 6-10. In any case, I expect a technical recovery from oversold levels and a mid-term improvement in the stock price on the strength of strong guidance.
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Avaya has exploded 11% after hours. According to Tech Radar, "Avaya has launched OneCloud ReadyNow, a cloud-hosted VoIP platform specifically aimed at enterprises."
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Wow. I exited at 11.52, but I wish I hadn't. We're at 11.95 and trying to gap fill up to 12.63!