Veeva Systems Upside Already Priced

Goldman Sachs initiated coverage of Veeva Systems Inc VEEV with a Neutral rating and a 12-month price target of $43, which represents 4 percent upside, saying the stock is trading at a significant premium to growth.

Veeva provides SaaS-based CRM, content management and data network solutions to the life sciences industry. VEEV has a strong position in life sciences CRM, amid the most successful Vault content and information management platform.

The stock is trading at 7.7X/37X GS' CY18 sales and FCF estimates, VEEV is trading at a significant premium to horizontal growth software comparables such as NOW (6.3X/26X).

"We believe Vault, the most successful of VEEV's adjacent products, can scale to become a $254mn business by CY18, supporting an overall revenue CAGR of 23% in the CY15-CY18 period," analyst Jesse Hulsing wrote in a note.

After growing at a 63 percent CAGR from CY12-CY15, Hulsing now expects only a 27 percent subscription revenue CAGR through CY18.

"While CRM's growth is likely to slow, it is also evolving into a cash generator that is funding other growth. We estimate CRM's contribution margin will be >35% by CY18," Hulsing added.

Meanwhile, Hulsing is more bullish on VEEV's second product cycle or "second act" with Vault and projects 65 percent Vault CAGR through CY18. The analyst believes upside from current levels will be dependent on stronger-than-projected ramp from Vault.

"Our base case is that Vault and other new categories become a bigger business than CRM by CY20," Hulsing added.

The analyst expects Vault to achieve $400 million plus in subscription revenue faster than CRM or better-than-modeled sales or R&D efficiency.