On Friday, Citi adjusted the price target for Veeva Systems (NYSE:VEEV), a cloud-computing company focused on pharmaceutical and life sciences industry applications. The new price target is set at $256, down from the previous target of $274, while the firm maintains a Buy rating on the stock.
The adjustment follows Veeva Systems' first-quarter results, which, despite being generally solid, were accompanied by a reduction in the full-year outlook. The forecast cut was more pronounced in revenue, which was lowered by 1 percentage point, and billings, which saw a 2 percentage point reduction.
However, the decrease was mostly attributed to the services sector, with subscription revenue only seeing a $5 million reduction and normalized subscription billings remaining unchanged when excluding foreign exchange impacts.
Citi noted that the revised outlook reflects additional macroeconomic pressures, including delays in decisions related to the evaluation of artificial intelligence technologies. The firm had anticipated Veeva Systems to exhibit more resilience owing to more constructive trends in the life sciences end-market. However, the results suggest that the weakness in the software sector may be more widespread than previously thought.
Consequently, Citi has revised its estimates downward by 1-2 percentage points across key performance indicators (KPIs) to align with Veeva's updated guidance. Despite the lowered estimates, Citi still views Veeva Systems as a potential beneficiary in the long term as companies look to modernize key clinical systems ahead of the next generation of AI.
The firm believes that the current valuation, at 23 times the projected 2025 enterprise value to free cash flow (EV/FCF), combined with the potential overhang from customer relationship management (CRM) migrations, presents an attractive entry point for investors.
InvestingPro Insights
InvestingPro data shows that Veeva Systems (NYSE:VEEV) holds a market capitalization of $31.38 billion, with a high Price/Earnings (P/E) ratio of 58.73, indicating the market's high expectations for future earnings growth. The company's P/E ratio has further adjusted to 62.26 based on the last twelve months as of Q4 2023. Additionally, the Price/Book ratio stands at 6.76, reflecting a premium valuation for the company's net asset value.
Despite the concerns raised by the reduction in the full-year outlook, Veeva Systems has maintained a solid financial position, with gross profit margins of 71.35% showcasing the company's ability to retain a significant portion of its revenue as gross profit. Moreover, the company has demonstrated a 9.68% revenue growth over the last twelve months as of Q4 2023, which may reassure investors of its market position and growth trajectory.
InvestingPro Tips highlight that Veeva Systems holds more cash than debt, suggesting a strong balance sheet, and the stock generally trades with low price volatility, which could appeal to risk-averse investors. Additionally, analysts predict the company will be profitable this year, and it has been profitable over the last twelve months. It's worth noting that there are 11 additional InvestingPro Tips available for Veeva Systems, providing a deeper analysis for potential investors. For those interested in gaining comprehensive insights, use the coupon code PRONEWS24 for an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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