VEEV Stock Study (8-31-23)

I recently did a stock study on Veeva Systems, Inc. (VEEV) with a closing price of $192.59.

M* writes:

     > Veeva is the global leading supplier of cloud-based software
     > solutions for the life sciences industry. The company’s best-of-
     > breed offerings address operating and regulatory requirements
     > for customers ranging from small, emerging biotechnology
     > companies to departments of global pharmaceutical manufacturers.
     > The company leverages its domain expertise to improve the
     > efficiency and compliance of the underserved life sciences
     > industry, displacing large, highly customized and dated
     > enterprise resource planning systems that have limited
     > flexibility. Its two main products are Veeva CRM, a customer
     > relationship management platform for companies with a salesforce,
     > and Veeva Vault, a content management platform that tackles
     > various functions within any life sciences company.

Over the past decade, this medium-size company has grown sales at an annualized rate of 29.1%. EPS has grown 25.2% per year since ’17 (previous years excluded due to fractional EPS values that would otherwise inflate rate to 40.8%). Lines are up, straight, and parallel. PTPM is above peer and industry averages, increasing from 18.3% in ’13 to 23.6% in ’22 with a last-5-year mean of 26.9%.

Also over the past decade, ROE leads peer and industry averages by increasing from 6.9% in ’13 to 13.9% in ’22 with a last-5-year mean of 16.5%. To complete the trifecta, the company has no long-term debt; Debt-to-Capital is lower than peer and industry averages with a last-5-year mean of 1.9%.

Quick Ratio is 4.0. M* rates the company “Exemplary” for Capital Allocation and categorizes them as “Wide” for Economic Moat. Value Line gives an A+ rating for Financial Strength. From what I’ve seen, it really doesn’t get much better than this!

With regard to sales growth:

• CNN Business projects 9.1% YOY and 12.8% per year for ’23 and ’22-’24, respectively (based on 25 analysts).
• YF projects YOY 10.1% and 19.0% for ’23 and ’24, respectively (28 analysts).
• Zacks projects YOY 9.7% and 19.3% for ’23 and ’24, respectively (11).
• Value Line projects 14.3% annualized growth from ’22-’27.
• CFRA projects 9.8% YOY and 14.4% per year for ’24 [FY actually ends Jan 31] and ’23-’25, respectively.
• M* offers a 2-year ACE of 14.1%.

I am forecasting just below the range at 9.0% per year.

With regard to EPS growth:

• CNN Business projects 6.8% YOY and 13.2% per year for ’23 and ’22-’24, respectively (based on 25 analysts), along with 5-year annualized growth of 14.0%.
• MarketWatch projects 14.5% and 14.0% per year for ’23-’25 and ’23-’26, respectively (29 analysts).
• Nasdaq.com projects 19.7% YOY and 20.0% per year for ’24-’26 and ’24-’27 [12/11/1 analyst(s) for ’24/’26/’27].
• Seeking Alpha projects 4-year annualized growth of 19.0%.
• YF projects YOY 5.8% and 18.5% for ’23 and ’24, respectively (27), along with 5-year annualized growth of 13.4%.
• Zacks projects YOY 6.8% and 17.9% for ’23 and ’24, respectively (12), along with 5-year annualized growth of 20.3%.
• Value Line projects 14.0% annualized growth from ’22-’27.
• CFRA projects 7.2% YOY and 12.2% per year for ’24 and ’23-’25, respectively, along with a 3-year CAGR of 15.0%.
• M* projects long-term growth at 22.8% per year.

I am forecasting below the long-term-estimate range (mean of six: 17.3%) at 13.0% per year. I will use ’22 EPS of $3.00/share as the initial value rather than 2023 Q1 EPS of $3.20 (annualized).

My Forecast High P/E is 50.0. Over the past decade, high P/E trends down from 327 in ’13 to 79.9 in ’22 with a last-5-year mean of 102. The last-5-year-mean average P/E is 78.6. I am forecasting well below the range as I expect these values to moderate as the company matures.

My Forecast Low P/E is 45.0. Over the past decade, low P/E ranges from 35.5 in ’18 to 191 in ’13 with a last-5-year mean of 54.9. I am forecasting near the bottom of the range [only ’18 and ’16 (42.5) are lower].

My Low Stock Price Forecast (LSPF) of $135.00 is default based on $3.00/share initial value. This is 29.9% less than the previous close and 10.6% less than the 52-week low.

These inputs land VEEV in the HOLD zone with a U/D ratio of 1.6. Total Annualized Return (TAR) is 7.9%.

PAR (using Forecast Average—not High—P/E) of 6.8% is less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 197 studies (68 outliers along with my study excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 15.0%, 15.8%, 72.0, and 47.4, respectively. I am lower across the board. Value Line’s projected average annual P/E of 42.0 is lower than MS (59.7) [unlike HEI, which I studied earlier this week, MS believes the P/E hype for this stock] and mine (47.5).

MS high / low EPS are $6.66 / $2.91 vs. my $5.53 / $3.00 (per share). My high EPS is lower due to a lower EPS growth rate. Value Line projects a future [high] EPS of $8.25, which is greater than both. M* is similar at $8.38/share [although this number may come from the website itself rather than MS; I have emailed Suzi to find out more].

MS LSPF of $143.60 implies a Forecast Low P/E of 49.3: greater than the above-stated 47.4. MS LSPF is 4.1% greater than the default $2.91/share * 47.4 = $137.93, which results in more aggressive zoning. MS LSPF is also 6.4% greater than mine.

My TAR (over 15.0% preferred) is much less than MS 19.4%.

MOS backing the current study seems robust.

I track a few different valuation metrics. PEG is 2.1 and 4.0 per Zacks and my projected P/E, respectively: both overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is cheap at 0.8. Kim Butcher’s “quick and dirty DCF” prices the stock at 35.0 * [$8.50 – ($0.00 + $0.20)] = $290.50: undervalued by 33.7%.

VEEV is a BUY under $170/share. For TAR to meet my personal 15% target, I need a stock price around $138.