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Morgan Stanley: Veeva Systems' Share Price Fails To Reflect Growth, Margin Potential

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January 30, 2018 9:40 am
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Veeva Systems Inc (NYSE:VEEV), a cloud-computing company focused on the pharma and life sciences industry, is an underpriced asset within the broader SaaS universe, according to Morgan Stanley. 

The Analyst

Morgan Stanley analyst Stan Zlotsky upgraded Veeva Systems from Equal-weight to Overweight and increased the price target from $69 to $72.

The Thesis

Veeva Systems has durable growth — fueled by an expanding $17-billion total addressable market — and margin potential that is not being reflected in current trading levels, Zlotsky said in a Tuesday note. A conservative setup into 2019 offers scope for estimates and shares to move up, he said. 

The company's best-in-class economics are likely to drive longer-term operating margin to 43 percent, representing the highest margin potential in Morgan Stanley's coverage universe, Zlotsky said.

"Veeva's above average sales efficiency and a disciplined go-to-market has enabled the company to simultaneously deliver strong revenue growth and greater than 30-percent operating margins today, well above the 18-percent average among more mature SaaS peers," the analyst said. 

Morgan Stanley estimates 16-percent revenue growth on a CAGR basis to $1.7 billion and a 36-percent operating margin by calendar year 2023, resulting in free cash flow of $593 million. 

With the 12-percent pullback in Veeva Systems shares since June 2017 compared to a 14-percent gain for the SaaS peer group, Morgan Stanley sees an attractive entry point to rebuild positions in the shares.

The Price Action

Veeva Systems shares are up over 41 percent year-to-date.

Shares were up 0.60 percent at $60.68 after the open Tuesday.

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