How Analysts View Verint After Earnings

Verint Systems Inc. (NASDAQ: VRNT) is currently in the middle of adjusting its go-to-market strategy as a way to counter the slowdown in its purchase approvals. However the resulting update to guidance was not exactly what analysts and investors were looking for.

Looking ahead to the end of this fiscal year, the company expects revenue guidance to be in the range of $1.15 billion to $1.19 billion, which was down from the previous range of $1.18 billion to $1.23 billion, while expecting earnings per share (EPS) to be $3.30. As for the next fiscal year, Verint guidance fell to $3.50 in EPS on $1.23 billion in revenue from the previous level of $3.80 and $1.32 billion.

What is important here is that management guided its fiscal 2017 revenue growth to just 5% year over year in constant currency, well below consensus estimate of 9% and meaningfully lower than the company’s “double-digit” long-term growth target, due to persistent macro headwinds and expectations for weaker pipeline conversions over the near to medium term.

As a result, Credit Suisse downgraded Verint to a Neutral rating from Outperform and lowered its price target to $45 from $60. At the same time, the firm lowered its fiscal 2016 estimates to $3.30 in EPS on $1.17 billion in revenue from $3.45 and $1.21 billion. Fiscal 2017 estimates were lowered to EPS of $3.50 on $1.23 billion in revenue from $4.00 and $1.32 billion.

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The firm further detailed its position in the report:

However, it now appears that the headwinds are more structural (or at least longer-term) in nature, as mgmt. cited several reasons for the weaker outlook including: (1) challenging approval cycles for large transformational deployments causing Verint to pivot to smaller entry-level packages; (2) customer preference to purchase individual point solutions initially, which is somewhat contrary to Verint’s integrated suite strategy, and (3) general pressure on gov’t budgets from macro headwinds in emerging markets. As such, we move to the sidelines as we believe Verint shares will not outperform in the near-term as it could take several qtrs. for the company to re-work its product mix and go-to-market strategy.

Oppenheimer lowered its price target to $60 from $65 while maintaining its Outperform rating. The firm noted that these results were penalized by foreign exchange rates and elongated purchase approval processes. On a positive note, Verint continues to win large contracts (including a $20 million enterprise order this quarter), maintains its ability to expand operating margins and has a solid pipeline, according to Oppenheimer. Longer term, the firm believes Verint remains well positioned in the actionable intelligence/big data/cybersecurity universe and that current headwinds will prove transitory.

A couple of other analysts weighed in on Verint:

• FBR has an Outperform rating but lowered its price target to $53 from $63.
• RBC Capital has an Outperform rating but lowered its price target to $52 from $62.

Shares of Verint were trading down over 13% at $40.30 Thursday, with a consensus analyst price target of $63.57 and a 52-week trading range of $39.24 to $66.45.

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