Investment firm Barclays upgraded cloud-computing company Veeva Systems (NYSE:VEEV) and downgraded cybersecurity company Rapid7 (NASDAQ:RPD) on Wednesday, noting that the software market could see a wide split in 2023.
Regarding Veeva (VEEV), analyst Saket Kalia raised his rating to overweight from equal weight and put a $205 price target on the stock, noting that the company's customers in life sciences are more defensive than others, as spending on software and research and development has "historically been more resilient" and they are more likely to open up their purse strings after cutting them in 2022.
Kalia also noted that Veeva's (VEEV) commercial segment, which generates more than half of its revenue, is likely to see lower churn from pharmaceutical sales rep users and it could benefit from a "growing mix" of revenue not related to customer relationship management.
Lastly, Veeva (VEEV) raised prices for the first time ever to the lower of CPI or 4%, starting in April 2023, which may "de-risk billings growth by 1-2 points" in fiscal 2024 and contribute to growth in the following years.
"From a value perspective, VEEV is not inexpensive, in our view, given its business quality, but with the stock trading in the mid-20s on [enterprise value-to-free cash flow basis] versus historical levels of 48-50x and with potential tailwinds in [fiscal 2024], we like the entry point and consider VEEV to be our defensive pick in vertical [software-as-a-service] for 2023," Kalia wrote in a note to clients.
Veeva Systems (VEEV) shares rose nearly 3% to $164.25 in premarket trading.
On Rapid7 (RPD), Kalia cut the firm's rating to equal weight from overweight, as it's likely that the company's transition to platform sales is the right one for the long-term, but could be impacted by a weakening economy.
Kalia also pointed out concerns about the stock's valuation at current levels and whether Rapid7 (RPD) can benefit the 400 or more basis point expansion management has talked about.
Rapid7 (RPD) shares were not active in premarket trading on Wednesday.
In late November, investment firm KeyBanc Capital Markets downgraded Rapid7 (RPD) as the research outlet also tweaked its estimates on several other cybersecurity firms following recent checks.
Analysts are largely bullish on Veeva Systems (VEEV). It has a HOLD rating from Seeking Alpha authors, while Wall Street analysts rate it a BUY. Conversely, Seeking Alpha's quant system, which consistently beats the market, rates VEEV a HOLD.