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Veeva Puts the Life Sciences Sector in the Cloud

02/12/2020 5:00 am EST

Focus: HEALTHCARE

Hilary Kramer

Editor, GameChangers

Veeva Systems (VEEV) is the leading provider of cloud-based software for the global life sciences industry, explains Hilary Kramer, leading growth stock expert and editor of GameChangers.

The company's solutions are designed to meet the unique needs of its customers and their strategic business functions. It helps life sciences companies develop and bring products to market faster and more efficiently; market and sell more effectively; and maintain compliance with government regulations.

Founded in 2008, VEEV is a relatively young company with its IPO in 2013. As a small and developing entity, the strong market acceptance of its products allowed VEEV to consistently grow revenues over 30% a year through 2018.

Now larger and more mature, the company continues to grow rapidly, although at a somewhat slower rate. In the third quarter of its current fiscal year, revenues grew 25%.

Sales of software subscriptions grew 27% and accounted for 81% of all revenues, while services revenues grew 16% and accounted for the remaining 19% of revenues. This growth is very profitable, operating margins are over 40% and earnings per share (EPS) have increased to $0.60 from $0.45 a share.

While VEEV’s business outside the life sciences industry is very small, it has been growing rapidly. For instance, the company is currently having active conversations with seven of the top 20 consumer products companies worldwide.

EPS should increase from $2.17 in the just-completed fiscal year to $2.55 in the January-2021 fiscal year as revenues grow by 27%. Comparisons will improve as the year goes on as investments in future growth will fade.

While the stock is not cheap on an absolute basis at 57X forward EPS, it is attractively valued relative to other software stocks and the growth universe in general because low interest rates are expanding the valuation multiples of companies with exceptional growth prospects.

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