Why Model N (MODN) is a Solid Investment Bet Post Q4 Results
Model N, Inc. MODN reported solid fourth-quarter fiscal 2023 results, with the bottom and top lines beating the respective Zacks Consensus Estimate. The San Mateo, CA-based company recorded a top-line expansion year over year, driven by solid sales growth across all verticals. New product launches in high-tech and life sciences verticals led to customer expansion in various end markets.
Earnings estimates for the current fiscal year have increased 17.5% over the past year while that for the next fiscal year is up 37.9% since January 2023, implying robust inherent growth potential. With healthy fundamentals, this Zacks Rank #1 (Strong Buy) stock appears to be a solid investment option at the moment. You can see the complete list of today’s Zacks #1 Rank stocks here.
Growth Drivers
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.
With a healthy contribution from all of its growth levers, the company ended fiscal 2023 on a positive note. It expects this momentum to continue in the impending quarters as well and offered bullish guidance.
For fiscal 2024, management expects total revenues in the band of $260-$263 million, up from $249.5 million in fiscal 2023. Non-GAAP operating income is expected within $46.9-$49.9 million, while non-GAAP earnings are anticipated to be within $1.25-$1.32 per share – up from $1.11 in fiscal 2023.
It delivered an earnings surprise of 20.8%, on average, in the trailing four quarters. The stock has a VGM Score of B.
Other Key Picks
Arista Networks, Inc. ANET, carrying a Zacks Rank #2 (Buy), is likely to benefit from 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 20.4% and delivered an earnings surprise of 12%, 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.
United States Cellular Corporation USM, sporting a Zacks Rank #1, is the fourth largest full-service wireless carrier in the United States. The company provides a range of wireless products and services, and a high-quality network to increase the competitiveness of local businesses and improve the efficiency of government operations.
U.S. Cellular has taken concrete steps to accelerate subscriber additions and improve churn management. The company aims to offer the best wireless experience to customers by providing superior quality network and national coverage. It is well-positioned to support the investment required for network enhancements, including the deployment of 5G technology. The company is well-positioned for continued demand for broadband.
Comtech Telecommunications Corp. CMTL, carrying a Zacks Rank #2, is another solid pick. Headquartered in Melville, NY, the company is a leading global provider of next-generation 911 emergency systems and secure wireless communications technologies to commercial and government customers.
Comtech’s key satellite earth station modems incorporate forward error correction and bandwidth compression technologies, which enable its customers to optimize their satellite networks by either reducing their satellite transponder lease costs or increasing data.
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