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Model N on Growth Path: Time to Add It to Your Portfolio?

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Model N Inc. (MODN - Free Report) has been gaining solid momentum and even scaled 6.4%, yesterday. With an impressive share price appreciation, the stock is a lucrative investment choice at the moment.

Shares of Model Nhave outperformed its industry in the past year. The stock has returned 37.2% compared with the industry’s growth of 30.8%.

Moreover, an upward revision in earnings estimates for 2018 reflects analysts’ confidence in the company’s future potential. Over the past 60 days, the Zacks Consensus Estimate for 2018 has narrowed from a loss of 9 cents to 6 cents.

Model N has a Zacks Rank #2 (Buy) and Growth Style Score of A. Back-tested results show that stocks with Growth Scores of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 handily outperform others.

Let’s delve deeper into the other factors that make this stock a solid pick.

Upbeat Q2 Results & Positive Outlook

Model N reported second-quarter fiscal 2018 earnings of 2 cents per share against the year-ago quarter’s loss of 25 cents per share. The Zacks Consensus Estimate was pegged at a loss of 4 cents per share.

Revenues of $39.2 million increased 17.9% year over year and beat the Zacks Consensus Estimate of $38 million. The figure also surpassed the guided range of $38-$38.5 million.

Management noted that successful integration of Revitas was a major driving force and aided the company deliver greater value to its investors. It has also made steady progress in its transformation to a 100% Software-as-a-Service (SaaS) based model.

The company also provided encouraging revenue guidance. Model N expects fiscal third-quarter 2018 GAAP revenues to be in the range of $39-$39.5 million. The Zacks Consensus Estimate is pegged at $39.3 million.

For fiscal 2018, Model N raised revenues guidance. The company now expects GAAP revenues, after deferred revenue adjustment, to be in the range of $152-$154 million (previous guidance $149-$151 million). The Zacks Consensus Estimate is pegged at $153 million.

Model N Growth Prospects

Model N’s Revenue Cloud offering for med-tech, pharma, semiconductor, manufacturing and high tech companies remains a positive.

The company had introduced Revenue Management platform to enhance digital reinvention experience. The company also launched Model N CPQ (Configure, Price and Quote), Model N Channel Cloud and Revenue Cloud for High Tech suites.

The new solutions will ensure that customers smoothly transform business digitally and realize business goals by keeping their functioning updated. It will help Model N to retain as well as expand its clientele, going forward.

The integration of Revitas, completed during fiscal 2017, has expanded Model N’s product suite and customer base.

SaaS & Maintenance revenues of $32.3 million grew 43% year over year in the last quarter. The company continues to make steady progress in its transformation to a 100% SaaS based model. This move will bolster the top line, going forward.

The company also won several deals in high tech and life sciences including the likes of DexCom, Amgen, Tiro, CSL, Intel (INTC - Free Report) and Seagate (STX - Free Report) . This bodes well for Model N’s top-line growth.

To Conclude

Model N outpaced the Zacks Consensus Estimate in the trailing four quarters, recording a positive average earnings surprise of 88.9%.

Further, it has a long-term expected EPS growth rate of 12.5%.

We expect the trend to continue and drive the overall financial performance of this revenue management solutions provider.

Key Pick

Another top-ranked stock in the broader technology sector is NVIDIA Corporation (NVDA - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NVIDIA has long-term earnings per share growth rate of 10.3%.

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