On Friday, BofA Securities adjusted its outlook on Veeva Systems (NYSE:VEEV), a cloud-computing company focused on pharmaceutical and life sciences industry applications, by reducing its price target to $204 from the previous $240. The firm has chosen to maintain a Neutral rating on the stock.
The reduction in the price target reflects a revised expectation for the company's future financial performance. Bofa Securities noted Veeva Systems as one of the top growth and margin companies in the software sector, highlighting its low to mid-teens growth and 40% margin. This performance is attributed to the strong customer economics that are typical of a vertical software business, which benefits from sales and marketing leverage.
Despite the company's strengths, BofA Securities believes that the current share price already incorporates the anticipated growth. With shares trading at 21 times the firm's estimated calendar year 2025 free cash flow, adjusted to 1.4 times for a 15% two-year compounded annual growth rate (CAGR), the firm suggests that the potential for near-term gains is limited. This is especially the case when considering certain risks that could impact the company's performance.
To align with the updated financial outlook for fiscal year 2025, BofA Securities has recalibrated its valuation model. The new price objective is based on an enterprise value to free cash flow (EV/FCF) multiple of 24 times the estimated free cash flow for calendar year 2025. This is adjusted to 1.2 times growth, a change from the previous multiple of 24 times with a 1.4 times growth adjustment.
InvestingPro Insights
As investors digest the revised outlook from BofA Securities on Veeva Systems (NYSE:VEEV), it's insightful to consider key financial metrics and expert analysis from InvestingPro. With a robust market capitalization of $31.38 billion, Veeva Systems is a significant player in the cloud-computing space. The company's strong financial position is evident as it holds more cash than debt on its balance sheet, a reassuring sign for investors wary of leverage risks.
Yet, Veeva's valuation raises some eyebrows, trading at a high earnings multiple with a P/E ratio of 58.73 and an adjusted P/E ratio for the last twelve months as of Q4 2024 at 62.26. This high valuation is also reflected in a Price / Book ratio of 6.76, which might be a concern for value-oriented investors. On the flip side, the company's revenue growth remains healthy at 9.68% over the last twelve months, indicating its continued expansion in the competitive tech landscape.
InvestingPro Tips highlight that Veeva Systems is trading at a high EBITDA valuation multiple, yet it's important to note that analysts predict the company will be profitable this year, a continuation of profitability over the last twelve months. For those looking to delve deeper into Veeva Systems' financials and future prospects, InvestingPro offers additional expert tips and insights. With the use of coupon code PRONEWS24, new subscribers can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking access to a total of 12 InvestingPro Tips for Veeva Systems, which could provide a more nuanced understanding of the investment landscape surrounding this innovative tech company.
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