Based in Ra’anana, Israel, NICE Ltd. (NICE) provides enterprise software solutions worldwide. The company operates in two segments: Customer Engagement; and Financial Crime and Compliance. In comparison, customer engagement solutions provider Verint Systems Inc. (VRNT) offers various applications for forecasting and scheduling, which accommodate the work needed to meet and exceed customer expectations. Verint is headquartered in Melville, N.Y.
Threats related to data security, especially on cloud-based platforms, continue to threaten the software market’s growth. Nevertheless, the software industry is expected to grow in the coming months owing to increasing demand from almost every industry as part of their digital transformation efforts and a continuation of remote work and lifestyles. According to Grand View Research, the global business software and services market is expected to grow at an 11.3% CAGR between 2021 – 2028.
VRNT has gained 10.9% in price over the past three months, while NICE has returned 6.5%. However, NICE’s 8.9% gains over the past month are significantly higher than VRNT’s 2.9% returns. Furthermore, NICE is the clear winner with 23.2% gains versus VRNT’s 1.2% returns in terms of their past six months’ performance.
But which of these two stocks is a better buy now? Let us find out.
On October 8, 2021, NICE announced its CXone Fall 2021 release. Paul Jarman, NICE CXone CEO, said, “With the fall 2021 release of CXone, we bring advanced capabilities to accelerate digital transformation and enable exceptional, end-to-end self-service experiences, allowing consumers to get answers to the most complex and sophisticated questions from the very first digital entry point.”
On September 2, 2021, VRNT completed its acquisition of Conversocial. In a recent Saddletree research note, Paul Stockford commented on the acquisition, “Verint enters this customer service market segment at an ideal time and with the potential to redefine the third-party messaging customer experience as it continues to find new applications for its conversational artificial intelligence.”
Recent Financial Results
NICE’s non-GAAP revenues increased 16% year-over-year to $459 million for its fiscal second quarter, ended June 30, 2021. The company’s non-GAAP operating income grew 16.4% year-over-year to $129.60 million, while its non-GAAP net income came in at $104.30 million representing a 16% year-over-year increase. Also, its non-GAAP EPS came in at $1.57, up 14.6% year-over-year.
VRNT’s non-GAAP revenues increased 4% year-over-year to $215.63 million for its fiscal second quarter, ended July 31, 2021. However, its non-GAAP operating income declined 18.6% year-over-year to $51.79 million, while its non-GAAP net income came in at $44.22 million, representing a 17.9% year-over-year decrease. Also, its non-GAAP EPS was $0.58, down 25.6% year-over-year.
Past and Expected Financial Performance
NICE’s revenue and EBITDA have grown at CAGRs of 7.5% and 11.5%, respectively, over the past three years. Analysts expect NICE’s revenue to increase 7% in the next quarter and 11.7% in the current year. The company’s EPS is expected to grow 4.3% in the next quarter and 11.2% in the current year. Moreover, its EPS is expected to grow at an 11.5% rate per annum over the next five years.
In comparison, VRNT’s revenue and EBITDA have grown at CAGRs of 2.8% and 7.1%, respectively, over the past three years. The company’s revenue is expected to decrease 32.7% in the next quarter and 32.3% in the current year. Its EPS is expected to decline 29.6% in the next quarter and 37.5% in the current year. However, VRNT’s EPS is expected to grow at a 14% rate per annum over the next five years.
NICE’s trailing-12-month revenue is 1.30 times VRNT’s. NICE is also more profitable, with EBITDA and levered FCF margins of 25.57% and 23.64%, respectively, compared to VRNT’s 13.34% and 11.76%.
Furthermore, NICE’s 8.21%, 3.89%, and 4.95% respective ROE, ROA, and ROTC are higher than VRNT’s 2.14%, 2.65%, and 3.39%.
In terms of forward non-GAAP P/E, NICE is currently trading at 45.18x, which is 115.1% higher than VRNT’s 21x. Furthermore, NICE’s 9.11 forward EV/S is 116.4% higher than VRNT’s 4.21x.
So, VRNT is relatively affordable here.
NICE has an overall B rating, which equates to a Buy in our proprietary POWR Rating system. In contrast, VRNT has an overall C rating, which translates to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
NICE has a B grade for Growth, which is consistent with analysts’ expectations that its EPS and revenue will increase in the coming months. In comparison, VRNT has a C grade for Growth, which is in sync with analysts’ expectations that its EPS and revenue will decline in the near term.
NICE also has a B grade for Stability, which is in sync with its 0.17 beta. In comparison, VRNT has a C grade for Stability, which is in sync with its 0.78 beta.
NICE has a B grade for Quality. This is justified given NICE’s 11.97% trailing-12-month net income margin, which is 91.2% higher than the 6.26% industry average. In comparison, VRNT has a C Quality grade, which is in sync with its negative trailing-12-month net income margin, which compares to the 13.49% industry average.
Rapid digital transformation and increasing adoption of advanced software solutions are expected to drive the software market’s growth. While NICE and VRNT are expected to gain, we think it is better to bet on NICE now because of its higher profit margin, better growth prospects, and robust financials.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Software – Application industry here. Also, click here to access all the top-rated stocks in the Software – Business industry.
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NICE shares were trading at $291.96 per share on Wednesday afternoon, up $3.98 (+1.38%). Year-to-date, NICE has gained 2.97%, versus a 25.78% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...
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