On Monday, Piper Sandler adjusted its outlook on Varonis Systems (NASDAQ:VRNS) by reducing the price target from $55.00 to $50.00, while maintaining a Neutral rating on the company's shares. The change reflects a new approach to the company's valuation, aiming to better align with the terminal multiple expectations of its industry peers.
The firm's analysts provided insights into the rationale behind the adjustment, emphasizing the need for alignment with peers that have similar fundamental profiles to Varonis Systems. The analysts believe that the current valuation of Varonis' shares accurately mirrors the company's underlying fundamentals, which display a decelerating growth trajectory.
Piper Sandler's base case discounted cash flow (DCF) analysis for Varonis Systems projects a five-year revenue compound annual growth rate (CAGR) of 20.2% through the calendar year 2029. Additionally, the firm forecasts a free cash flow (FCF) margin of 29.0% by the end of the same period.
The revised price target also takes into account a change in the terminal enterprise value (EV) to free cash flow (FCF) multiple, which has been adjusted from 23 times to 20 times. This adjustment is part of the firm's valuation methodology. Moreover, the analysis by Piper Sandler includes an 18% discount rate and an assumption of 128 million fully diluted shares outstanding.
The firm's neutral stance on Varonis Systems indicates a balanced perspective on the stock, suggesting that the potential for stock price movement is evenly weighted with the possibility of both upside and downside risks. Piper Sandler's revised price target and maintained rating are based on their assessment of Varonis Systems' financial outlook and market positioning as the company progresses into the year 2025.
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