Citi raises Varonis shares target on strong growth prospects
On Tuesday, Citi maintained a Neutral rating on Varonis Systems (NASDAQ:) but increased its shares target from $46.00 to $50.00. The adjustment follows Varonis Systems’ demonstration of an accelerated Annual Recurring Revenue (ARR) growth to 18% year-over-year (YoY), marking the highest since the first quarter of 2023. The company’s Net New ARR also delivered a significant beat, which is the most substantial in the past seven quarters since the model transition began.
Varonis Systems has been experiencing a positive trend with its SaaS Go-To-Market strategy, which has resulted in shorter sales cycles and improved activity with new logos.
Additionally, the company’s move towards a SaaS model and the integration of MDDR (Managed Detection and Response) have been identified as key growth drivers. The MDDR has been particularly impactful, even though it has only been in place for two quarters.
The company’s total revenue accelerated by 7 percentage points sequentially to 13% YoY, the best since the fourth quarter of 2022. This increase is partly attributed to the conversion of perpetual maintenance to SaaS.
The strong financial performance, combined with substantial EBIT, operating profit margin, and free cash flow upside, as well as raised guidance, are expected to support the company’s share price and investor sentiment.
The analyst from Citi highlighted that while the price target has been lifted, a more visible ARR ramp, aiming for mid-term targets of 17-23%, and less dependence on quick conversions from the installed base, would be necessary to provide a clear multi-year acceleration pathway. This would be a convincing factor for Citi to reconsider its current stance on the sidelines.
In other recent news, Varonis Systems has reported substantial growth in its Software-as-a-Service (SaaS) platform and Managed Data Detection and Response (MDDR) offering.
The company announced an 18% increase in annual recurring revenue (ARR) to $584.2 million, with SaaS ARR now accounting for approximately 36% of the total.
Piper Sandler, RBC Capital Markets, TD Cowen, and JPMorgan have all adjusted their outlook on Varonis Systems stock following these recent developments.
Piper Sandler raised its price target to $48, RBC Capital Markets to $65, TD Cowen to $65, and JPMorgan to $59, all maintaining their respective ratings on the stock. These adjustments reflect the company’s robust performance and its successful transition towards a SaaS business model.
InvestingPro Insights
As Varonis Systems (NASDAQ:VRNS) continues to impress with its SaaS Go-To-Market strategy and ARR growth, real-time data from InvestingPro offers additional insights into the company’s financial health and market performance. With a market capitalization of $5.41 billion and an impressive gross profit margin of 85.08% in the last twelve months as of Q1 2024, Varonis demonstrates its ability to generate significant revenue relative to its costs. Despite not being profitable over the last twelve months, analysts predict the company will turn a profit this year, which could signal a pivotal moment for investors.
InvestingPro Tips suggest that Varonis holds more cash than debt on its balance sheet and has liquid assets that exceed short-term obligations, indicating a strong financial position. Additionally, the company has experienced a high return over the last year, with a 72.99% price total return, outpacing many competitors. This performance is reflected in the stock trading at 91.7% of its 52-week high, with a previous close price of $48.49. Investors looking to gain further insights into Varonis Systems can explore additional tips, as there are 11 InvestingPro Tips in total available at https://www.investing.com/pro/VRNS. For those considering an InvestingPro subscription, use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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