UBS says this little-known IT stock is primed to rally nearly 40%

Globant’s key business fundamentals should give it a leg up over its peers, according to UBS. The bank upgraded the information technology firm to buy from neutral, although it lowered its price target to $230 from $240. However, this updated price forecast still implies that Globant could rally 38% from its Friday close. Shares of Globant have slipped 29% year to date, but UBS analyst Leonardo Olmos attributed this underperformance to external factors outside of the company’s control. GLOB YTD mountain GLOB YTD chart “Tainted by peers’ guides reduction, GLOB is now trading at 15% discount to history. The stock prices in additional 5- 10% top-line downward revisions ahead, implying GLOB will miss its guidance — which has never happened before,” he wrote. Instead, Olmos noted that seasonal and bookings strength should spur positive earnings momentum in the second half of the year. As this happens, Globant should stand out even more from its competitors and may be the first to see an inflection in the industry. “If the new outlooks are met, the growth gap of Globant vs. global peers should continue to be significant,” the analyst said. “GLOB’s ingredients drive peers’ recovery, but only GLOB has the full recipe.” For instance, while digital transformation could also propel peer Accenture upward, Globant should benefit “first and the most” because it has a significant part of projects coming from artificial intelligence implementation. “We estimate the Digital Studios represents 70% of GLOB’s sales and it could be a proxy for the relevance of digital transformation to GLOB,” Olmos wrote. The company is also poised to start its second quarter with a much larger resources base than it had this time last year, UBS said. Globant has also demonstrated its ability to pick up projects from new industries, such as financial services. “GLOB’s earnings call also made clear that its ability to gain market share is relevant, considering that most competitors are decelerating on the same verticals that GLOB is succeeding,” Olmos added. Globant reported on May 16 first-quarter earnings and revenue that were in line with analysts’ expectations, FactSet data shows. Shares dipped more than 5% on the numbers.