This blog is devoted to helping investors make informed decisions. It will be regularly updated and provide opinions on earnings results. It is not intended to give investment advice and should not be taken as such. Consult your investment advisor.
You can either pay sky high evaluations for big data plays or buy a backdoor entry into the sector with a company like Verint Systems(NASDAQ: VRNT).
Companies that already use Verint's customer interaction capture
hardware will increasingly want to buy its data analytics software and
services in order to analyze the captured data. I’m sympathetic to the
argument, and hold its rival and potential partner NICE Systems(NASDAQ: NICE). With that said, recent results from Verint were a mixed bag, and the stock looks fairly valued for now.
Verint reports mixed data
Verint’s first quarter numbers were pretty much in line with expectations, but as I wrote about the last results,
investors would have been justified in expecting a bit more from the
company. Its management was upbeat last time but, like a lot of
technology companies, this quarter's results were mixed.
In short, Europe, the Middle East and Africa proved to be a headwind,
while the Asia-Pacific region’s growth was strong enough to counter it.
European growth is now expected to be near flat for the full year
versus previous expectations of small growth. This affected its core
Enterprise Intelligence business and meant that it only grew by 1.2% in
the quarter as opposed to the total revenue growth of 2.6%.
In order to see how Verint generates its revenues, I’ve broken out 2013 segmental revenues below.
In geographic terms, the first quarter saw 54.6% of its $205 million
in revenues coming from the Americas, with Europe, the Middle East and
Africa contributing 20%, as opposed to 25% for the first quarter last
year, and Asia-Pacific with 25.4%. While the Europe, Middle East and
Africa decline of $9 million was unwelcome it wasn’t enough to put a
dampener on the overall results.
Communications intelligence is an area where Verint is stronger than
NICE, and it demonstrated an impressive 7.2% revenue growth. The
government vertical is large for Verint -- traditionally around 25% of
revenues -- and there were some concerns that it would be affected by
the sequester. Clearly these worries turned out to be misguided, and
Verint’s international exposure certainly helped. In addition, this type
of intelligence gathering and surveillance activity is not going away
anytime soon.
However, the biggest positive surprise was probably that the video
intelligence segment revenues only fell by 1.7% after declining 13.4%
over the last year. There was some discussion in the conference call of
increased interest following the tragic events in Boston and such events
emphasize the need for expenditure on these types of solutions.
Elsewhere in the segment a $4 million order came in from a big box
retailer in order to help it reduce shrinkage.
Long term growth drivers
Putting these elements together demonstrates that the key drivers of
Verint’s future growth are still in place. As argued in the conference
call, customers likely want to buy solutions from a single vendor and as
Verint already has a substantial installed base with its data capture
solutions, it can expect future growth. In addition it has a number of
secular drivers in its favor. For example, even in a slow economic
environment, financial institutions generate growth by investing in
analyzing existing customer interactions. Similarly reducing fraud and
money laundering will always be a part of a financial firm or contact
center’s operations.
Indeed, a quick look at NICE Systems' recent results
revealed these positive underlying trends. Similar to Verint it kept
full year guidance intact. NICE is seeing an increased willingness among
its customers to sign bigger deals and integrate its analytics
solutions with its product sales. NICE is well positioned to do this,
particularly to its string verticals like financials and contact
centers, because of its partnership with IBM(NYSE: IBM).
Back in October, NICE announced that it would be integrating IBM’s big
data analytics software within its solutions. It’s a mutually beneficial
solution because IBM will get entry into NICE’s installed base while
also giving NICE added functionality with which it can add value to
customers.
The interesting thing about IBM’s results
is that they somewhat presaged weaker conditions for IT enterprise
spending and set the tone for a disappointing IT earnings season. The
fact that NICE and Verint reported results that were pretty much in line
and kept full year growth expectations is therefore somewhat of a net
positive.
Where next for Verint?
Full year guidance is for 6%-7% growth and earnings of around
$2.75 and free cash flow generation of around $100 million. At the
current price this makes for a forward PE of around 12.8 and a free cash
flow yield of around 5.3%. All of which is pretty fair value for a
company forecast to generate single digit earnings growth over the next
couple of years. I suspect the stock is also being
supported on the back of speculation over a possible acquisition by
NICE. It’s worth monitoring but hard to make a case that it is great
value right now despite the positive long term prospects.
No comments:
Post a Comment