UBS has adjusted its outlook on Varonis Systems (NASDAQ: NASDAQ:VRNS), a leader in data security and analytics, by increasing its price target from $63.00 to $70.00.
The firm has reiterated its Buy rating on the stock. The analyst at UBS expressed a positive stance on Varonis, citing a reasonable setup for the company's performance in the second half of 2024.
The analyst pointed out that despite Varonis' year-to-date (YTD) share price growth of 29%, which outperformed the IGV and BUG indexes, the month-to-date (MTD) increase of 3% aligns with the median for the software sector with market caps over $5 billion.
The analyst believes that the market has set achievable expectations for Varonis in the latter part of the year.
According to UBS, the consensus for Varonis' 2H24 net new annual recurring revenue (NNARR) is $48 million, indicating a modest year-over-year growth of 5%, a slowdown from the 29% NNARR growth seen in the first half.
Management at Varonis has been conservative in their projections, considering various factors such as the transition to SaaS, contributions from GenAI-driven business, and potential federal contributions in the third quarter.
In other recent news, Varonis Systems has demonstrated strong financial performance, with Baird raising the company's price target from $60.00 to $62.00 due to expected favorable year-over-year comparisons in its third-quarter results.
Varonis is projected to achieve an annual recurring revenue (ARR) of $607 million and revenue of $142 million, according to Baird. The company has also introduced new data security features at Dreamforce 2024, aimed at enhancing data security for Salesforce (NYSE:CRM) customers.
In addition, Varonis announced plans to offer $350 million in Convertible Senior Notes due 2029, with an additional option for initial purchasers to buy up to $52.5 million more. This move follows the company's second fiscal quarter results, which revealed a 13% year-over-year revenue growth and a significant increase in its ARR to $584.2 million.
Several investment firms, including FBN Securities, Truist Securities, and Citi, have raised their price targets for Varonis, citing its strong Q2 results and successful shift to a SaaS business model.
InvestingPro Insights
Recent data from InvestingPro adds depth to UBS's optimistic outlook on Varonis Systems (NASDAQ:VRNS). The company's market capitalization stands at $6.55 billion, reflecting investor confidence in its growth potential. Varonis has demonstrated impressive revenue growth, with a 12.93% increase in the most recent quarter, surpassing the 6.57% growth over the last twelve months. This acceleration aligns with UBS's expectations for potential positive surprises in Varonis' financial model.
InvestingPro Tips highlight Varonis' strong financial position, noting that the company "holds more cash than debt on its balance sheet" and "liquid assets exceed short-term obligations." These factors contribute to the company's financial stability as it pursues growth opportunities, including the transition to SaaS and GenAI-driven business mentioned in the UBS analysis.
The company's gross profit margin is particularly noteworthy at 84.54%, which InvestingPro describes as "impressive." This high margin provides Varonis with financial flexibility to invest in innovation and market expansion, supporting UBS's bullish stance on the stock.
It's worth noting that InvestingPro offers 13 additional tips for Varonis, providing investors with a comprehensive view of the company's financial health and market position. These insights can be valuable for those looking to make informed investment decisions in the data security and analytics sector.
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