Verint named Strong Sell at Spruce Point as M&A 'obscures' organic growth

Shares of Verint (VRNT) are sliding on Thursday after the stock was named as a "Strong Sell" at Spruce Point, which believes "low-quality" M&A "obscures" organic growth and appears to facilitate "beat and raises." STRONG SELL: In a newly published report, Spruce Point named Verint as "Strong Sell," saying the market's "misunderstanding" of the company's flat-to-negative organic sales growth is being "obscured" by frequent M&A, while a "beat-and raise cookie jar" and aggressive accounting measures have inflated its share price. Spruce Point argued that with the market valuing Verint like a "high-flying SaaS company" on the mere announcement of a "yet unproven, transition story," the stock's recent surge is "unsustainable and will correct as recent accounting-driven benefits are anniversaried, and the market realizes that Verint is years behind the competition to the cloud." According to the report, Verint has "continued to pursue smaller tuck-in acquisitions since, but most deals go unannounced, and are not explicitly named in SEC filings. We believe that, after taking into account M&A, FX, and the effects of ASC 606, organic growth was in the low single digits in FY18 and negative in FY19, far below reported top-line growth in the high single digits." Furthermore, Spruce Point highlighted what it believes to be "key executives with dubious pasts," "atrocious governance" and "questionable" ASC 606-related accounting changes that "inflate sales and earnings growth." Meanwhile, "insiders are dumping the stock just as it approaches all-time highs," according to the short-focused research firm, which values the company at an EV/EBITDA multiple of 8-10 times for a price target of $17-$25, "yielding 60%-70% downside." PRICE ACTION: In morning trading, shares of Verint have plunged over 9% to $55.50.