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Why Model N (MODN) is a Healthy Investment Bet Right Now

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Shares of Model N, Inc. (MODN - Free Report) have surged 49.8% over the past year, driven by improved market demand across its portfolio on the back of a flexible business model and solid cash flow. Earnings estimates for the current fiscal year have increased 66.1% over the past year while that for the next fiscal year is up 36.6% since February 2022, implying robust inherent growth potential. With healthy fundamentals, this Zacks Rank #2 (Buy) stock appears to be a solid investment option at the moment. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Growth Drivers

San Mateo, CA-based Model N provides revenue management solutions for life sciences and technology companies, including applications for configure, price, quote, rebates management and regulatory compliance. The company is accelerating its transition of revenue management to the cloud and is making steady progress in its transformation to a Software-as-a-Service (SaaS) based business model.

Companies using legacy systems like spreadsheets are increasingly finding it difficult to keep pace with the current industry trends that include shorter product lifecycles, strict compliance & regulatory controls, and growing volumes of transactional data. We believe that Model N’s cloud-based revenue management solutions are well suited to address the current unique needs of these industries. The company’s solutions provide a higher return on investment (ROI) and plug gaps in the end-to-end revenue management process that legacy systems fail to do. This improves the top-line growth of the companies, in turn boosting the adoption of Model N’s solutions.

Model N has significant growth opportunities in the underpenetrated revenue management market as it continues to replace legacy processes that are labor-intensive, error-prone, inflexible and costly. Its solutions are particularly suitable for manufacturing and financial services. Its Revenue Cloud transforms the revenue lifecycle into a strategic, end-to-end process aligned across the enterprise, while its industry-specific solution suites – Revenue Cloud for Life Sciences and Revenue Cloud for High Tech – offer a range of solutions from individual products to complete product suites.

The company reported strong fourth-quarter fiscal 2022 results, with both the bottom line and top line beating the respective Zacks Consensus Estimate driven by the successful transition to a SAAS platform as part of its transformation to a cloud company. With a healthy contribution from all of its growth levers, the company ended fiscal 2022 on a positive note. It expects this momentum to continue in the impending quarters as well.

It delivered a positive earnings surprise of 61.5%, on average, in the trailing four quarters. The stock has a VGM Score of B.

Other Key Picks

Ooma Inc. (OOMA - Free Report) , sporting a Zacks Rank #1, delivered an earnings surprise of 21.7%, on average, in the trailing four quarters. Earnings estimates for Ooma for the current year have moved up 37.8% since March 2022. It has a VGM Score of B.

Ooma offers communications services and related technologies for businesses and consumers in the United States and Canada. It helps to create powerful connected experiences for businesses and consumers through its smart cloud-based SaaS platform.

Arista Networks, Inc. (ANET - Free Report) , sporting a Zacks Rank #1, is likely to benefit from the strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has a long-term earnings growth expectation of 17.5% and delivered an earnings surprise of 12.7%, on average, in the trailing four quarters.

It holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed datacenter segment. Arista is increasingly gaining market traction in 200- and 400-gig high-performance switching products and remains well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations.

Clearfield, Inc. (CLFD - Free Report) , sporting a Zacks Rank #1, is a leading provider of communication networks, telecom services and support solutions. The company is witnessing a strong demand environment, largely driven by an effort by rural broadband operators to establish themselves as dominant broadband access providers. In addition, Clearfield is gaining traction with Tier 2 carriers that aim to extend their fiber connectivity across the country.

Headquartered in Minneapolis, MN, Clearfield has gained 17.8% over the past year. It delivered an earnings surprise of 39.7%, on average, in the trailing four quarters.

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