JMP Securities Downgrades Model N Citing Fair Valuation; Shares Down 25%

JMP Securities downgraded Model N Inc MODN to Market Perform from Market Outperform following the company's disappointing guidance for the fourth quarter and FY17.

On Tuesday, shares plunged 29 percent to $9.75, nearing its 52-week low of $9.19.

Model N sees fourth quarter non-GAAP loss of $(0.13) - $(0.11) versus consensus of $(0.07) and expects sales of $27.5 million - $28 million, also lower than the Street view of $29.3 million.

The company's FY16 loss forecast of $(0.66) - $(0.64) and sales expectation of $106 million - $106.5 million also missed consensus estimate of $(0.64) and $107.3 million, respectively.

"While I am pleased with the revenue and profitability results we delivered this quarter, I am not pleased with our execution in the face of challenges we recently experienced that will impact our guidance for the 2016 fiscal year and reduce our growth for the 2017 fiscal year," CEO Edward Sander said in a press release.

JMP Securities cut its FY16 non-GAAP EPS estimate to ($0.66) from ($0.64) (consensus ($0.64)), and lowered its FY17 non-GAAP EPS estimate to ($0.41) from ($0.29) (consensus ($0.27)).

"On the positive side, CEO Ed Sander has conviction in the opportunity at Model N and has the background and industry expertise to work through these issues, but on the negative side, we believe these efforts may take some time and we see signs that the environment may become more competitive," analyst Patrick Walravens wrote in a note.

The analyst noted Model N is "fairly valued" as it trades at a 2017 EV/Revenue multiple of 2.6x, roughly a 55 percent discount to the SaaS peer group.