Please ensure Javascript is enabled for purposes of website accessibility

Why Veeva Systems Rallied 11.4% Today

By Todd Campbell – Nov 23, 2016 at 4:16PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Better-than-expected third-quarter sales and earnings are fueling investor optimism.

Image source: Getty Images.

What happened

After reporting financials for the fiscal third quarter of 2017 that were ahead of industry watchers' expectations and offering up solid guidance for the rest of the year, shares in Veeva Systems (VEEV 2.59%) jumped 11.4% on Wednesday.

So what

Surging demand for Veeva Systems cloud-based software for the life sciences industry resulted in third-quarter sales of $143 million, up 34% from a year ago. Management's leveraging of that sales growth against the company's fixed costs led to non-GAAP earnings per share (EPS) of $0.22 in the quarter, up 83% year over year. Overall, sales were $7 million higher than industry analysts were expecting, and non-GAAP EPS were $0.06 better than analyst estimates.

The company's third-quarter performance was driven by both revenue from its content management software, which helps drug manufacturers better manage customer relationships, and Veeva Vault, a software suite that helps drug developers manage their clinical drug development. Profit improved thanks to gross margin expanding from 65.38% last year to 69.24% last quarter. 

Management also offered up fiscal fourth-quarter and full-year guidance that's above forecasts. They estimate fourth-quarter sales will be between $145 million and $146 million and EPS will be $0.17. Analysts came into the third-quarter earnings report expecting sales of $140.4 million and EPS of $0.15 in the fourth quarter. Management is also targeting fiscal year 2017 sales of between $538.9 million and $539.9 million, which is above the $526.8 million consensus estimate, and EPS of $0.68, which is above the $0.63 consensus estimate.

Now what

Once software companies get big enough, they can produce significant profit growth, and it appears that Veeva Systems has reached that point. While software sales can be very competitive, Veeva Systems has carved out an important and lucrative niche serving biopharma companies, and that specialization makes this an intriguing company for investors to consider for their portfolios. 

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. Like this article? Follow him on Twitter where he goes by the handle @ebcapital to see more articles like this.

The Motley Fool owns shares of and recommends Veeva Systems. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.