Imperial Downgrades VASCO Data Security As Stock Rallies Past Valuation

Cybersecurity company VASCO Data Security International, Inc. VDSI reported Tuesday after the close with forecast-beating first-quarter earnings and revenue. The company reaffirmed its fiscal 2018 revenue guidance.

The Analyst

Imperial Capital analyst Saliq Khan downgraded VASCO Data Security from Outperform to In-Line, as the stock moved past the firm's valuation following the post-earnings rally.

Khan raised the price target for the shares from $16 to $19.

The Thesis

VASCO Data Security's strong quarter was due to the doubling of mobile security software and incremental growth of the eSignLive e-signature solution, Khan said in a Thursday note. Strong software and services revenue and lower hardware revenue supported gross margins, the analyst said. 

Imperial Capital expects the mix of hardware and non-hardware to bring Vasco's gross margins from 76 percent in Q1 to 70-71 percent for the full year. 

Citing the strong cash balance, Khan said Vasco could use it to acquire technologies to accelerate the growth of its software and services businesses. Although the company needs to be wary of valuations and integration challenges with potential acquisitions, the analyst said the company cannot afford to "sit idle" on the M&A front.

Imperial is revising its estimates to better reflect the Vasco's 2018 guidance and its outlook for the out years, Khan said. 

The Price Action

Vasco shares have surged about 49 percent year-to-date. 

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