Commvault launches to new highs; more highs to come

Commvault Systems Inc. NASDAQ: CVLT is a less-covered, important cybersecurity stock with a rocketing share price. 

The story is a dual narrative, including the company's shift to cloud-based services and the growing need for cybersecurity. 

Commvault has been around for decades, providing data protection and recovery services. The latest move was the launch of Commvault Cloud, a cloud-based data management and recovery system powered by Metallic AI. 

Metallic AI is the heart of the system. It combines machine learning automation with AI to detect risk and manage recovery options. The system is proving highly effective at detecting risks faster and leveraging AI to mitigate threats and recover at the cloud scale. The takeaway for investors is that Commvault Cloud is accelerating the company's shift to the subscription model, driving ARR and margin. 

Commvault banks on shift to a subscription model 

Commvault had a solid quarter, highlighting its strength in the cybersecurity arena and the effectiveness of its business shift. Revenue reached $216.8 million for a gain of 11.1% year-over-year (YOY), driven solely by subscription growth. Licenses, the legacy business, contracted by 24% but were offset by a 31% increase in subscriptions. The Americas segment was strongest, with 16% growth; results also included 6% growth internationally. Subscription ARR growth topped 29%, suggesting business acceleration will continue this calendar year. 

Margin news is supportive of this market. The company widened its margin on a GAAP and adjusted basis to drive accelerated earnings growth on the bottom line. The adjusted operating margin is reported by 21.5%, driving a 25% increase in adjusted earnings. The EPS of 78 cents is also a nickel better than the MarketBeat.com consensus estimate forecasted, and the cash flow is relatively unimpeded. The quarterly cash flow topped $44 million, with $42.6 of free cash flow for an FCF margin of 19.6%. 

The guidance is also favorable to higher share prices. The company forecasts Q4 and full-year F2024 revenue and earnings above the consensus target. The guidance may be cautious because the company predicts a sequential slowdown and slight margin contraction for the zero-trust cybersecurity market. Regardless, the outlook can sustain the capital return program into the coming fiscal year. Commvault repurchased $51.3 million worth of shares in Q3 to reduce the basic share count by 1.9% and keep the diluted count flat. 

Analysts catapult Commvault to a higher valuation

The analysts' activity following the Q3 release was light, with only two revisions, but they are solid. 

The two include an upgrade to "overweight" from "sector weight" by Keybanc, which also sets the new high price target. The two new targets imply a 2% to 15% upside for the market with shares near $95, and the revision trend is likely to continue this year. Critical details from the analysts' data include a rising sentiment, up to "moderate buy" from "hold," and a consensus price target, which is up 20% YOY. 

In the words of Keybanc, Commvault has emerged as a data-protection leader by entwining machine learning and AI at the enterprise level for hybrid cloud solutions. Investors should expect to hear more good news later this year.

The technical outlook: Commvault heads toward $145

The technical outlook for Commvault is robust. This cybersecurity stock broke out of its trading range on the Q3 news to set a new all-time high. The high results from a $55 rally doubled the price between 2020 and early 2024 within a significant trading range. 

Now that the market is moving to new highs, we can expect it to advance by $55 up to 100% for a target range of $145 to $180. How quickly the market moves to that level depends on upcoming results and the analysts.