VEEV Stock Study (5-29-24)

I recently did a stock study on Veeva Systems, Inc. (VEEV) with a closing price of $203.09. The previous stock study is here.

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.

Since 2018 (FY ends Jan 31; references to year at BI and Value Line incremented to align), this medium-size company has grown sales and EPS at annualized rates of 24.2% and 21.7%, respectively (earlier years excluded due to low base that otherwise further inflate EPS growth rate). Lines are up, straight, and parallel.

Over the last decade, PTPM leads peer and industry averages while increasing from 21.4% (’15) to 24.9% (’24) with a last-5-year mean of 26.3%. ROE leads peer and industry averages by increasing from 9.6% (’15) to 11.9% (’24) with a last-5-year mean of 15.1%. 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 2.1%.

Quick Ratio is 4.2. M* rates the company “Exemplary” for Capital Allocation and awards a “Wide” economic moat. Value Line gives an “A” rating (down from A+ nine months ago) for Financial Strength.

With regard to sales growth:

• YF projects YOY 15.6% and 13.7% for ’25 and ’26, respectively (based on 24 analysts).
• Zacks projects YOY 15.6% and 13.9% for ’25 and ’26, respectively (11 analysts).
• Value Line projects 15.2% annualized growth from ’24-’29.
• CFRA projects 15.5% YOY and 12.4% per year for ’25 and ’24-’26, respectively.
• M* offers a 2-year ACE of 14.5%.

I am forecasting below the range at 12.0% per year.

With regard to EPS growth:

• MarketWatch projects 18.9% and 18.1% per year for ’24-’26 and ’24-’27, respectively (based on 28 analysts).
• Seeking Alpha projects 4-year annualized growth of 19.4%.
• YF projects YOY 27.1% and 10.7% for ’25 and ’26 (23 analysts) along with 5-year annualized growth of 13.6%.
• Zacks projects YOY 26.8% and 12.4% for ’25 and ’26, respectively (10), along with 5-year annualized growth of 25.4%.
• Value Line projects 14.4% annualized growth from ’24-’29.
• CFRA projects 27.3% YOY and 14.9% per year for ’25 and ’24-’26, respectively, along with a 3-year CAGR of 15.0%.
• M* projects long-term growth of 24.9% per year.

My 13.0% forecast is below the long-term-estimate range (mean of five: 19.5%). Initial value is 2024 EPS of $3.22/share.

My Forecast High P/E is 50.0. Over the past decade, high P/E trends down from 142 (’15) to 70.0 (’24) with a last-5-year mean of 101 and a last-5-year-mean average P/E of 79.6. I expect these values to moderate as the company matures.

My Forecast Low P/E is 40.0. Over the past decade, low P/E ranges from 35.5 in ’19 to 80.8 in ’22 with a last-5-year mean of 57.8. I am forecasting near the bottom of the range (only ’19 is lower).

My Low Stock Price Forecast (LSPF) is $162.40. Default $128.80 based on initial value given above seems unreasonably low at 36.6% less than the previous close. I am going with the 52-week low instead: 20.0% less than the previous close.

These inputs land VEEV in the HOLD zone with a U/D ratio of 2.3. Total Annualized Return (TAR) is 7.9%.

PAR (using Forecast Average—not High—P/E) of 5.6% 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 158 studies done in the past 90 days (my study and 46 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 13.0%, 14.4%, 67.0, and 49.0, respectively. I am lower across the board. Value Line projects a future average annual P/E of 38.0 that is less than MS (58.0) and less than mine (45.0).

MS high / low EPS are $6.37 / $3.22 versus my $5.93 / $3.22 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $9.50 is much greater than both.

MS LSPF of $159.50 implies a Forecast Low P/E of 49.5 versus the above-stated 49.0. MS LSPF is 1.1% greater than the default $3.22/share * 49.0 = $157.78, which results in more aggressive zoning. MS LSPF is 1.8% less than mine.

TAR (over 15.0% preferred) is less than MS 14.9%. I believe MOS to be robust in the current study.

With regard to valuation, PEG is 1.3 and 4.3 per Zacks and my projected P/E. The respective projected growth rates of 25.4% and 13.0% help to explain this. Relative Value [(current P/E) / 5-year-mean average P/E] is somewhat cheap at 0.79.

With a forecast high price ~$296, the BI TAR criterion will be satisfied ~$148. This is so much lower than the current price for two reasons. First, my EPS forecast is 6.5% per year less than the mean. I often go below the range, but the wide dispersion in estimates (11.8%) may compound the effect. Second, the stock is trading in the middle of the 52-week range. A selloff should improve U/D and TAR.

Per U/D, the current study has VEEV a BUY under $195/share.