Baird has demonstrated a positive outlook on Varonis Systems (NASDAQ: NASDAQ:VRNS), raising the software company's price target from $60.00 to $62.00.
The firm maintained its Outperform rating on the stock. The adjustment comes as Varonis is expected to face favorable year-over-year comparisons in its third-quarter results.
The company is seen as well-prepared for the upcoming earnings report, bolstered by strong performance indicators and a robust pipeline for software-as-a-service (SaaS) conversions expected to continue into the fourth quarter and the 2025 fiscal year.
Baird's analysis suggests that Varonis is on track to achieve an annual recurring revenue (ARR) of $607 million, marking a 17.3% increase year-over-year, and revenue of $142 million, a 16.0% rise from the previous year.
These projections are slightly above the consensus, indicating a potentially strong quarter for the company. The analyst notes that while investor sentiment has significantly improved, reflected in the stock's outperformance of the iShares Expanded Tech-Software Sector ETF (IGV) by approximately 16 percentage points over the last three months, the recent moderation in momentum suggests a more balanced risk/reward in the near term.
The report also highlights Varonis Systems' current valuation, trading at approximately 10 times its expected enterprise value to 2025 sales. The analyst's commentary indicates that while the near-term outlook presents a balanced set of risks and rewards, Varonis is viewed as well-positioned for mid-to-long-term growth.
In other recent news, Varonis Systems has made significant strides in data security and financial performance. The company introduced new security features at Dreamforce 2024 aimed at enhancing data security for Salesforce (NYSE:CRM) customers.
Simultaneously, Varonis announced plans to offer $350 million in Convertible Senior Notes due 2029, with an additional option for initial purchasers to buy up to $52.5 million more.
The company's second fiscal quarter results revealed a 13% year-over-year revenue growth, and a significant increase in its Annual Recurring Revenue (ARR) to $584.2 million. This performance was primarily driven by its Software as a Service (SaaS) platform and Managed Data Detection and Response (MDDR) offering.
In response to these developments, several investment firms, including FBN Securities, Truist Securities, and Citi, have raised their price targets for Varonis, citing its strong Q2 results and successful shift to a SaaS business model.
InvestingPro Insights
Varonis Systems' recent performance aligns with Baird's positive outlook, as evidenced by several key metrics from InvestingPro. The company's impressive gross profit margin of 84.54% for the last twelve months as of Q2 2024 underscores its operational efficiency, supporting Baird's expectation of strong financial results. This is further reinforced by an InvestingPro Tip highlighting Varonis' "impressive gross profit margins."
The company's revenue growth of 12.93% in Q2 2024 compared to the same quarter last year indicates a healthy expansion, aligning with Baird's projections for increased annual recurring revenue. Additionally, Varonis' strong return over the last year, with a one-year price total return of 83.03%, reflects the improved investor sentiment mentioned in the Baird report.
While Varonis is currently trading near its 52-week high, with its price at 96.32% of the 52-week high, this could be seen as a testament to its strong market position and growth potential. However, it's worth noting that the company is trading at a high Price / Book multiple of 14.27, which may indicate a premium valuation.
For investors seeking a more comprehensive analysis, InvestingPro offers 13 additional tips for Varonis Systems, providing a deeper understanding of the company's financial health and market position.
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