Credit Suisse Downgrades Verint Systems To Underperform Following Large Q4 Miss

Credit Suisse’s Michael Nemeroff downgraded the rating for Verint Systems Inc. VRNT from Neutral to Underperform, while slashing the price target from $45 to $29, after the company reported highly disappointing F4Q results and missed guidance expectations.

Verint Systems had reported a large miss in F3Q, and has now reported an even larger miss for F4Q. The company’s revenue of $281.8M was down 10.7 percent y/y and significantly short of Street expectations of $318.0M, representing 0.8 percent growth. EPS of $0.90 was well below Street estimate of $1.17.

Management reduced the revenue and EPS guidance for F2017 from ~$1.229B to ~$1.112B-$1.157B and from $3.50 to ~$3.04, respectively. The current revenue guidance range implies y/y growth of -2 percent to +2 percent.

Stagnant Earnings Growth

“As we have previously written, our primary concern is whether VRNT's issues are more cyclical (short-term) stemming from elongated sales cycles due to macro headwinds / FX factors that are beyond the company's control, or are more structural and longer-term in nature due to a secular shift to cloud (in Enterprise), share loss to competition, or simply a lack of demand; after F4Q, we're incrementally more concerned it's the latter,” analyst Michael Nemeroff wrote.

Investors would have been willing to overlook the reduction in revenue guidance in case management had showed earnings leverage by reducing costs, Nemeroff commented. He pointed out, however, that management had indicated this was not their strategy as of now.

The analyst said that F2017 could well be a second straight year of stagnant earnings growth. Management may be able to show some earnings growth via the recently announced 2-year buyback program of $150M. Nemeroff added, “As such, we downgrade VRNT shares to Underperform as we do not see any near-term catalysts to drive the stock higher.”