On Wednesday, Piper Sandler adjusted its outlook on Varonis Systems (NASDAQ:VRNS) shares, increasing the price target to $55.00 from the previous $48.00, while keeping an Overweight rating on the stock. The firm highlighted that Varonis Systems' third-quarter results exceeded expectations in terms of Annual Recurring Revenue (ARR) and Free Cash Flow (FCF).
However, the provided guidance did not fully capitalize on this positive performance, indicating a potential slowdown in growth for the fourth quarter's Net New Annual Recurring Revenue (NNARR).
The analyst noted the emerging impact of GenAI on the company's results, which, although minimal, suggests early adoption. Despite the less-than-anticipated guidance for the fourth quarter, the firm maintains a Neutral stance on Varonis Systems.
This stance is based on the belief that the company's progress in transitioning to a Software as a Service (SaaS) model and the potential upside to future financial figures are already reflected in the current valuation.
The decision to raise the price target to $55 is an alignment with the terminal multiples of Varonis Systems' industry peers. This adjustment reflects a recognition of the company's market position in relation to comparable companies.
Varonis Systems specializes in data security and analytics and has been transitioning its business model towards SaaS, a move that is closely watched by investors and analysts alike. The latest financial results and the subsequent price target increase are indicative of the company's performance and market expectations.
The stock's Overweight rating remains unchanged, suggesting that Piper Sandler continues to see Varonis Systems as a favorable investment compared to other stocks in the sector, despite the anticipated deceleration in growth for the upcoming quarter.
In other recent news, Varonis Systems exhibited a strong financial performance, surpassing consensus estimates. The company's Net New Annual Recurring Revenue (NNARR) exceeded expectations by $5 million, and the Annual Recurring Revenue (ARR) showed consistent growth. This contributed to an improved Fiscal Year 2025 ARR guidance, projecting growth of 17-18% year-over-year.
Varonis also announced plans to offer $350 million in Convertible Senior Notes due 2029, with an option for initial purchasers to buy up to $52.5 million more.
Several firms, including Citi, TD Cowen, DA Davidson, UBS, and Baird, have adjusted their price targets for Varonis in light of these recent developments. The company's shift to a Software as a Service (SaaS) model and the emerging contribution of General Artificial Intelligence (Gen AI) to its business results were key factors in these adjustments.
Varonis Systems also introduced new data security features at Dreamforce 2024, aimed at enhancing data security for Salesforce (NYSE:CRM) customers. Despite a slight slowdown in the federal vertical, the overall momentum for the company in the data security and analytics sector remains strong.
InvestingPro Insights
Complementing Piper Sandler's analysis, InvestingPro data reveals additional insights into Varonis Systems' financial position and market performance. The company's revenue for the last twelve months as of Q2 2024 stood at $520.77 million, with a notable revenue growth of 12.93% in Q2 2024. This aligns with the analyst's observations of exceeding expectations in ARR.
Varonis Systems boasts an impressive gross profit margin of 84.54%, underscoring its operational efficiency. This metric supports the company's strong position as it transitions to a SaaS model, potentially contributing to improved profitability in the future.
InvestingPro Tips highlight that Varonis holds more cash than debt on its balance sheet, and its liquid assets exceed short-term obligations. These factors provide financial flexibility as the company navigates its business model transition and invests in growth initiatives, including GenAI adoption.
The stock's recent performance has been robust, with a 34.35% price return over the past six months and an 86.6% return over the last year. This aligns with the analyst's decision to raise the price target, reflecting market confidence in Varonis Systems' strategic direction.
For investors seeking a more comprehensive analysis, InvestingPro offers 12 additional tips for Varonis Systems, providing a deeper understanding of the company's financial health and market position.
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