VG - Baird's top cloud software ideas look to build on strong operating trends

A preview of Q3 earnings for cloud software companies has Baird bullish about prospects, as it expects healthy operating trends to keep manifesting across results. "We expect digital transformation and WFA requirements to power continued strong Q3 trends for most of our covered names," the firm's William Power writes. "With many of our UCC (Unified Communications and Collaboration) leaders underperforming this year we like the risk/reward for long-term investors," he says. He adds they're also positive on public safety leaders like Axon (NASDAQ:AXON) and Everbridge (NASDAQ:EVBG), which the firm expects to continue to benefit from tailwinds in public safety spending. Overall, the cloud software group is down 1.8% year-to-date vs. the Nasdaq's 17.2% gain. The faster-growing cohort is the laggard here, down 7.4% while Software-as-a-Service names are up 28.8%. And that presents a valuation disconnect. Baird's higher-growing names are trading at an average of about 14.5x 2022 revenues, vs. the broader SaaS group at about 20x.

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Baird's top cloud software ideas look to build on strong operating trends