Image shown: A rally following Verint’s fourth-quarter report has put its price performance ahead of the market’s return since the beginning of 2017.
We think Verint Systems is getting a bad rap about its non-GAAP reporting. Operating cash flow at the company is tremendous, and the market may finally be coming around to recognizing its undervalued nature.
By Brian Nelson, CFA
Simulated Best Ideas Newsletter portfolio idea Verint Systems (VRNT) reported solid fourth-quarter results that showed total revenue advancing nearly 8% thanks to strong service and support sales, and operating income leaping nearly 90%, to $36.3 million. GAAP net income in the quarter more than doubled, to $18.3 million. Net debt, including long-term restricted cash, fell to $417 million from $435 million at the end of the fiscal fourth quarter last year. Almost everything seems to be moving in the right direction at Verint, and so has its stock price more recently.
Management commented that the positive momentum continues, and the executive team took an opportunity in the fourth-quarter press release to raise guidance for non-GAAP revenue and earnings per share for the fiscal year ending January 31, 2019. In its Cyber Intelligence segment, the company expects 10% revenue growth, and in its Customer Engagement segment, mid-single-digit expansion should be expected. Collectively, that’s good enough for total fiscal-year revenue of $1.23 billion with non-GAAP earnings per share of $3.09 at the midpoint of the updated guidance range.
At its current share price, Verint is trading at less than 14 times current-year non-GAAP earnings, which we think are of quality. For the year ended January 31, 2018, for example, Verint’s capital-light operations generated operating cash flow per share of $2.79, and we would expect operating cash flow to expand in the coming year. Concerns about the quality of Verint’s earnings are overblown, and we’re happy to see the market finally sort this out. We value shares at $50 each.
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Brian Nelson does not own shares in any of the securities mentioned above. Some of the companies written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.