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Veeva Systems Shares Plunge Despite Strong Q3 Earnings; Target Price $301

Veeva Systems, an American cloud-computing company focused on pharmaceutical and life sciences industry applications, reported better-than-expected earnings in the third quarter of the fiscal year 2021 and forecasts revenue between $1,446-$1,448 million for the next fiscal.

Despite that Veeva Systems’ shares plunged about 10% to $257.47 in pre-market trading on Wednesday. However, the stock is up over 100% so far this year.

The cloud-computing company reported revenues of $377.5 million in the third quarter, beating the Wall Street consensus of $362 million, up from $280.9 million one year ago, an increase of 34% year-over-year. Subscription services revenues for the third quarter were $302.9 million, up from $226.8 million one year ago, an increase of 34% year-over-year.

For the third quarter, fully diluted net income per share was $0.60, compared to $0.52 one year ago, while non-GAAP fully diluted net income per share was $0.78, compared to $0.60 one year ago. That was higher than the market expectations of $0.68.

“Veeva reported a beat-and-raise F3Q with strength across all areas of the business. Guidance for F4Q and FY22 came in above consensus and looks conservative, especially as initial FY22 revenue guidance calls for a deceleration to 19% Y/Y growth. FY22 non-GAAP operating margin guidance reflects Veeva investing more in newer growth drivers, such as Data Cloud and MyVeeva, which we view as the right move. We maintain our BUY rating and $325 price target on Veeva Systems Inc,” said Rishi N. Jaluria, Senior Research Analyst at D.A. Davidson & Company.

Veeva Systems Stock Price Forecast

Seven equity analysts forecast the average price in 12 months at $301.71 with a high forecast of $335.00 and a low forecast of $225.00. The average price target represents a 6.16% increase from the last price of $284.20. From those seven analysts, five rated “Buy”, one rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $332 with a high of $532 under a bull-case scenario and $194 under the worst-case scenario. The firm currently has an “Overweight” rating on the cloud-computing company’s stock.

“Veeva delivered 11% billings upside in Q3, doubling the typical beat, while also driving op margins to company high of 41%. First look at FY22 revenue and profitability suggests plenty of conservatism to deliver beat/raise quarters. We roll forward estimates, remain OW and increase PT to $332,” said Stan Zlotsky, equity analyst at Morgan Stanley.

Several other analysts have also upgraded their stock outlook. Stifel raised their target price to $325 from $300. Needham upped the target price to $327 from $310. Raymond James increased the target price to $335 from $285. In August, Bank of America boosted their price objective to $302 from $230 and gave the stock a “buy” rating. Piper Sandler boosted their price target to $310 from $220and gave the stock an “overweight” rating.

Analyst Comments

“Veeva’s core products provide SaaS solutions for the Life Sciences industry, targeting $10B+ of spending today with potential overtime to address more of the $44B Life Sciences spend on IT, leveraging the company’s strong brand recognition and expanding its TAM into other regulated industries and use cases,” said Stan Zlotsky, equity analyst at Morgan Stanley.

“As Veeva penetrates this large TAM, we see a sustainable 17% revenue CAGR over the next 5 years. Our $332PT is based on 2.4x EV/CY25 FCF/Growth adjusted, a premium to large-cap peers, but justified given the long term FCF durability and large market opportunity,” Zlotsky added.

Upside and Downside Risks

Risks to Upside: 1) VEEV penetrates its TAM faster than expected as it gains traction outside life sciences. 2) Traction within newer products and add-ons accelerates – highlighted by Morgan Stanley.

Risks to Downside: 1) 70%+ seat penetration in CRM could limit growth while declining sales headcount in Life Sciences may be a headwind. 2) TAM may be more limited due to vertical-specific focus. 3) Increased competition on CRM by competitors such as Iqvia.

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