Wednesday, Cantor Fitzgerald initiated coverage on Varonis Systems (NASDAQ:VRNS) with an Overweight rating and a price target of $60.00, citing the increasing importance of data security investments. According to InvestingPro data, seven analysts have recently revised their earnings estimates upward for the upcoming period, with analyst targets ranging from $37 to $70 per share. The company currently maintains impressive gross profit margins of 84.06%.
The firm highlighted several trends driving this focus, including the adoption of AI and ML workloads, the growth of data volumes, and the challenges of perimeter security tools in preventing lateral movements by malicious actors. These trends, combined with the shift towards hybrid cloud environments and technological advancements that enhance user experience, are expected to contribute to Varonis's performance.
The analyst noted that feedback from partners regarding Varonis's GenAI technology indicates it is a key topic in discussions, which is anticipated to significantly affect the company's Annual Recurring Revenue (ARR) in fiscal year 2025. With a market capitalization of nearly $5 billion and revenue growth of 12.07% over the last twelve months, Varonis shows promising momentum.
InvestingPro subscribers can access over 30 additional financial metrics and insights about Varonis's growth trajectory. In the near term, the firm sees Managed Data Detection & Response (MDDR), the transition from perpetual licenses to SaaS, and the acquisition of new customers as ongoing factors that will drive ARR growth.
Looking ahead, Cantor Fitzgerald expects Varonis to benefit from strong execution, an expanding Total (EPA:TTEF) Addressable Market (TAM), and a competitive edge in the market. These factors are believed to position Varonis for multi-year revenue growth in the high teens to low twenties percentage range.
The $60 price target is based on an 11.8 times multiple of the estimated fiscal year 2025 revenue. InvestingPro's Fair Value analysis suggests the stock is currently fairly valued, with a Financial Health score of FAIR based on comprehensive analysis of multiple financial indicators.
The analyst's statement provided a clear rationale for the Overweight rating: "We are initiating coverage with an Overweight rating and a 12-month price target of $60 based on 11.8x FY25E revenue." This reflects the firm's confidence in Varonis's potential for sustained growth and market leadership in the data security sector.
In other recent news, Varonis Systems has demonstrated robust growth in its Q3 2024 earnings, with the Annual Recurring Revenue (ARR) reaching $610 million, marking an 18% year-over-year increase. This growth coincides with the company's successful transition to a Software (ETR:SOWGn) as a Service (SaaS) model, now comprising 43% of the total ARR. The company reported total revenues of $148.1 million for the quarter, up by 21% from the previous year, and a significant improvement in free cash flow to $88.6 million.
Despite some operational cost pressures, Varonis Systems has raised its full-year ARR guidance and expects continued revenue growth. The company's outlook suggests an acceleration in SaaS conversions and revenue growth into 2025 and 2026. Piper Sandler's neutral stance on Varonis Systems suggests a balanced perspective on the stock, indicating an evenly weighted potential for both upside and downside risks.
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