The Street Reacts To Veeva Systems' Q3 Beat

Veeva Systems Inc VEEV, a cloud solution provider for the global life sciences industry, reported Wednesday with third-quarter results that came in better than expected and an encouraging look at the coming fiscal year.  

The Analysts

Morgan Stanley's Stan Zlotsky maintains an Overweight rating on Veeva Systems with a price target lifted from $109 to $112.

KeyBanc Capital Markets' Brent Bracelin maintains at Overweight, price target lifted from $108 to $114.

Guggenheim Partners' Ken Wong maintains at Buy, price target lifted from $115 to $120.

Raymond James' Brian Peterson maintains at Market Perform.

Morgan Stanley: 4 Positive Takeaways

Veeva's Q3 report contains four positive readouts that support the stock's premium valuation, Zlotsky said in a research report. They are:

• Total revenue growth accelerated from 25 percent in the second quarter to 27 percent due to a 36-percent increase in pro services.
• Billings of $156.5 million were better than the $150 million expected and are attributed to the pro services business.
• Operating margins rose 450 basis points from a year ago and hit an all-time high of 37.6 percent in the quarter.
• The 2020 revenue growth guidance of 17.4 percent at the midpoint came in better than expected.

KeyBanc: Focus On Vault Platform

Veeva's Vault platform contributed to the revenue beat in the quarter due to a broad-based adoption of the 14 applications in the Vault portfolio, Bracelin said in a note.

The Vault business is not only running at a $430-million run rate, but is growing at 52 percent year-over-year and accounted for 48 percent of total sales.

The Vault's scale remains underappreciated by the Street, as its annual run rate can triple within five years to $1.2 billion and control "meaningful" market share within the $5-billion total addressable market, the analyst said. 

Related Link: Morgan Stanley: Veeva Systems' Share Price Fails To Reflect Growth, Margin Potential

Guidance Outpaces Guggenheim's Expectations 

Veeva guided its fiscal 2020 revenue to a range of $1-$1.01 billion and margins to be "slightly" above 34 percent, ahead of the consensus estimate of $995 million and 34 percent, respectively, Wong said in a note.

The revenue guidance is a result of a higher-than-expected fourth-quarter seasonality guidance, the analyst said. Veeva's adjusted EBIT guidance of $299 to $300 million and EPS guidance of $1.58 were also better than expected, he said. 

Raymond James Waits For Better Entry Point 

Veeva reported another "impressive upside quarter" that warrants an upward revision to forward estimates, Peterson said in a note. The momentum in the quarter and encouraging guidance for 2020 imply the company is "only scratching the surface," he said, adding that a 20-percent revenue growth rate is sustainable for at least the foreseeable future.

A bullish case cannot be made for Veeva at current levels with the stock trading at 14 times fiscal 2020 revenue estimate, which is double the SaaS group average at seven times 2020 revenue, the analyst said. 

Investors should wait for a better entry point before being buying, according to Raymond James. 

Price Action

Veeva Systems shares were up 0.4 percent at $98.27 at the time of publication Thursday. 

Related Link: KeyBanc: Veeva Systems Is A Core Holding In The Cloud Space