Baird Is Buying Alibaba, Shopify, Paycom & Paylocity

• Shares of Shopify Inc SHOP, Paycom Software Inc PAYC, Paylocity Holding Corp PCTY and Alibaba Group Holding Ltd BABA have been under pressure since December 7, while Wayfair Inc W shares have gained.
• Baird analysts initiated coverage of four companies with Outperform ratings, and of one company with a Neutral rating.
• Companies could benefit from positive trends in ecommerce.

Shopify

Coverage was initiated with an Outperform rating and a price target of $31, which implies about 20 percent upside. The analysts believe that Shopify is benefiting from “multiple positive cross-currents.”

These positive trends include:

1. Healthy e-commerce growth
2. Increasing pressure on small merchants to enhance their ecommerce capabilities
3. Emerging social commerce and Marketplace channels
4. An attractive SaaS business model

Paycom

Coverage was initiated with an Outperform rating and a price target of $48. Paycom is a rapidly growing provider of SaaS payroll/HCM solutions. Although the company is still in the initial stages of its growth cycle, it is already highly profitable.

Paycom’s business model is highly scalable, with the potential for significant margin expansion. The analysts believe that the company is poised to benefit from multiple drivers in the long term.

These drives may include:

1. Secular tailwinds
2. A large and growing TAM
3. Significant runway for salesforce growth
4. Sizable natural revenue churn opportunity from larger competitors

Paylocity

Coverage was initiated with an Outperform rating and a price target of $44. Paylocity is a fast- growing provider of SaaS payroll/HCM solutions, and it in the early stages of its growth cycle. Its business model is highly scalable and it has the potential for healthy margin expansion.

The analysts believe that there are a number of drivers for Paylocity in the long term, including:

1. Secular tailwinds
2. A large and growing TAM
3. Salesforce growth
4. Meaningful natural revenue churn opportunity from larger competitors

Alibaba

Coverage was initiated with an Outperform rating and a price target of $94. The analysts said that Alibaba appeared well positioned for significant ongoing revenue growth and FCF generation, given its share in secular growth markets of ecommerce, online advertising, streaming media, and cloud computing.

“Despite concerns around the Chinese macro environment, we note the Internet market is still developing in the region along with an ever-increasing consumer class. With shares underperforming relative to comparable companies, we view current entry points as long-term attractive,” the Baird report noted.

Wayfair

Coverage was initiated with an Neutral rating and a price target of $50. “We have a positive fundamental bias on shares as we believe Wayfair is creating one of the largest, most sustainable “Home” category retailers, leveraging a technology/logistics-oriented e-commerce platform not easily duplicated,” the analysts wrote.

They added that there is also near-term upside potential to Wayfair’s shares as well as estimates due to favorable ecommerce trends and the company’s performance during the holiday season. Wayfair’s shares have surged around 16 percent since Thanksgiving.

The next fundamental catalyst requires Wayfair to exhibit continued operating leverage and generate positive EBITDA in 2016, despite more difficult top-line comps, the Baird report stated.