Earnings estimates have been plummeting for CommVault (CVLT) after the company delivered disappointing financial results on October 28. This drove the stock to a Zacks Rank #5 (Strong Sell).
Although shares of CommVault have taken a beating so far this year, it still does not look cheap with a forward P/E of 48x and an EV/EBITDA multiple of 18.
CommVault Systems provides data and information management software applications and related services. The company develops, markets, and sells a suite of software applications under the Simpana brand that provides its customers with various functions, such as data protection, data migration and archiving, and enterprise-wide search capabilities. It is headquartered in Oceanport, New Jersey.
Second Quarter Results
CommVault reported disappointing results for its fiscal 2015 second quarter on October 28. Earnings per share (not adjusted for stock-based compensation expense) came in at 14 cents, missing the Zacks Consensus Estimate of 28 cents.
Revenue rose 7% year-over-year but declined 1% from the previous quarter to $151.1 million. This was below the consensus of $157.0 million. Software revenue declined 4% from the prior quarter while Services revenue slipped 1%.
Despite the relatively modest year-over-year increase in revenue, operating expenses soared 23%. This was driven in large part by a 25% increase in Sales & Marketing expenses as the company increased its sales force. Meanwhile, operating income plunged 59% year-over-year as the operating margin fell from 18.6% to 7.2%.
Estimates Plummeting
Following the Q2 report, analysts revised their estimates significantly lower for both fiscal 2015 and 2016. The negative revisions were strong enough to send CommVault to a Zacks Rank #5 (Strong Sell), placing in the bottom 5% of all companies that we rank based on earnings momentum.
The 2015 Zacks Consensus Estimate is now $0.75, down from $1.30 before the report. The 2016 consensus is currently $1.15, down from $1.74 over the same period.
You can see the dramatic drop in consensus estimates in the company’s “Price & Consensus” chart:
Premium Valuation
Although shares of CommVault are down significantly so far this year, the valuation picture does not look attractive. The stock trades at a lofty 48x 12-month forward earnings, well above the industry median of 19x. And its enterprise value to EBITDA (earnings before interest, taxes, depreciation and amortization) multiple of 18 is well above the industry median of 9.
The Bottom Line
With declining profit margins, declining earnings estimates, and premium valuation, investors should consider avoiding CommVault for now.
Todd Bunton, CFA is a Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor and Surprise Trader services.
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