CommVault Systems

by Zacks Equity Research

November 23, 2012 |

CommVault Systems Inc. (CVLT - Free Report) delivered a 38.1% positive surprise in its fiscal second quarter, which convinced most analysts to raise their estimates. This Zacks #1 Rank (Strong Buy) provider of Enterprise Backup/Recovery software has a long-term projected growth rate of 25.0%.

Strong Second Quarter

On October 29, CommVault Systems reported that fiscal second quarter earnings per share surged 70.6% year over year to 29 cents, which exceeded the Zacks Consensus Estimate by 38.1%. The strong growth was primarily driven by the improving operating margin in the quarter.

Revenue jumped 21.2% from the prior-year quarter to $118.2 million, slightly above the Zacks Consensus Estimate of $115.0 million. The better-than-expected growth was driven by solid performances from software (up 23.8%) and services (up 18.8%).

Higher revenues and stringent cost control helped the operating margin to expand 550 basis points to 18.9% in the reported quarter.

Outlook Remains Positive

CommVault Systems expects the positive first-half momentum to continue in the second half of fiscal 2013. Despite an uncertain macro environment, the company is confident that it will deliver strong second half results on the basis of increasing demand from enterprise and federal sectors, as well as continuous cost control efforts.

Earnings Estimates Move Higher

It is noteworthy that most analysts raised their forward estimates for both 2013 and 2014 over the last 30 days. For 2013, the Zacks Consensus Estimate increased 4.4% to 94 cents as 4 of 6 estimates were revised upward. For 2014, the Zacks Consensus Estimate of $1.06 improved 3.8% as 3 estimates out of 5 moved higher.

Reasonable Valuation

Currently, CommVault Systems is trading at a premium to most of its peers based on P/E, P/S and P/B. The premium valuation seems justified given the company’s solid earnings growth prospects. Its earnings growth expectation of 25.0% over the next five years compares favorably with the industry average of 17.8%, indicating room for further significant expansion. Moreover, its return on equity (ROE) of 17.1% is higher than the industry average of 11.5%.

Chart Shows Growth Potential

The 12-month earnings per share (EPS) chart clearly shows that share prices have increased at a higher pace than earnings over the last few years.

Currently, its share price is hovering around $63.00. The consensus estimates for 2013 and 2014 are trending upward. The estimate revision graph indicates a slow but steady upward trend through fiscal 2015. As illustrated in the chart below, share prices should increase at a similar or higher pace than the estimate revision trend.

Incorporated in 1996, CommVault Systems Inc. develops software that primarily helps enterprises to manage data and information. Through its flagship Simpana brand, the company delivers different data management activities including backup and recovery capabilities for both onsite and cloud environments.

Oceanport, New Jersey-based CommVault has a market capital of $2.87 billion and competes with EMC Corp. (EMC), Hewlett-Packard (HPQ), IBM (IBM) and Symantec Corp. (SYMC).

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