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Bull of the Day: Commvault Systems (CVLT)

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Commvault Systems (CVLT - Free Report) , a Zacks Rank #1 (Strong Buy), provides a data protection platform that helps customers secure, defend, and recover their data. The company supports clients in a range of industries including insurance and financial services, government, health care, technology, manufacturing, and energy.

CVLT stock is benefitting from underlying momentum in the technology sector and hit an all-time high in price this month. Shares are displaying relative strength as buying pressure accumulates in this market leader.

The company is part of the Zacks Computer – Software industry group, which currently ranks in the top 30% out of more than 250 Zacks Ranked Industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform the market over the next 3 to 6 months. This group has been steadily outperforming over the past year:

Zacks Investment Research
Image Source: Zacks Investment Research

Historical research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1.

It’s no secret that investing in stocks that are part of leading industry groups can give us a leg up relative to the market. By focusing on leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success.

Company Description

Tinton Falls, New Jersey-based Commvault Systems offers enterprise-grade data protection as a service on a cloud platform with advanced, built-in security controls. As part of its offering, the company also provides backup, replication and disaster recovery solutions.

In addition, Commvault Systems sells appliances that integrate its software with hardware for use in a range of business cases. The technology company also offers consulting, education, installation, and remote-managed services.

Commvault Systems sells its products and services directly through its sales force and indirectly through its network of distributors, value-added resellers, systems integrators, and original equipment manufacturers.

Earnings Trends and Future Estimates

The software company has established an impressive earnings history. CVLT exceeded earnings estimates in each of the last five quarters. Just last week, Commvault Systems reported fiscal fourth-quarter earnings of $0.79/share, an 8.2% beat versus the $0.73/share consensus estimate.

Revenues jumped 9.7% year-over-year to $223.3 million during the quarter. The company has delivered a trailing four-quarter average earnings surprise of 8.4%. Consistently beating earnings estimates is a recipe for success.

Analysts covering CVLT are in agreement and have been raising their earnings estimates lately. For the current fiscal year, analysts bumped up earnings estimates by 5.96% in the past 60 days. The Zacks Consensus Estimate now stands at $3.38/share, reflecting potential growth of 13.4% relative to the prior year. Revenues are projected to rise 8.4% to $910 million.

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Image Source: Zacks Investment Research

Let’s Get Technical

CVLT shares have been steadily outperforming the market this year. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.

Image Source: StockCharts

Notice how both the 50-day (blue line) and 200-day (red line) moving averages are sloping up. The stock has been making a series of 52-week (and all-time) highs. With both strong fundamental and technical indicators, Commvault Systems is poised to continue its outperformance. The stock has rewarded investors in 2024 with a nearly 37% return.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, Commvault Systems has recently witnessed positive revisions. As long as this trend remains intact (and CVLT continues to deliver earnings beats), the stock will likely continue its bullish run this year.

Bottom Line

Commvault Systems is ranked favorably by our Zacks Style Scores, with second-best ‘B’ ratings in our Growth and Momentum categories. This indicates that CVLT stock is likely to continue to move higher based on a favorable combination of earnings and sales growth as well as strong price momentum.

Backed by a leading industry group and impressive history of earnings beats, it’s not difficult to see why CVLT stock is a compelling investment. An appealing technical trend along with robust fundamentals paint a bullish picture moving forward.

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