F5: Brean, Murray Initates at Buy, But Caution Abounds
April 8, 2009, 1:21 pm - Posted by Tiernan Ray
Computer networking equipment maker F5 Networks (FFIV) is among the Nasdaq’s biggest gainers this morning, up $2.39, or 10.6%, at $24.93, after the company yesterday announced preliminary results for its March-ending quarter that met expectations for profit despite a shortfall in revenue.
The stock jump is similar to the rise today in shares of Juniper Networks (JNPR), which also pre-announced yesterday. There was one initiation of coverage with a “Buy,” but there is sufficient caution among others on the Street.
Brean Murray Carret & Co. analyst Jess Lubert this morning initiated coverage of the company with a “Buy” rating and a $27 price target, writing that trends in data network promise a return to double-digit sales growth and that the company’s 25% operating margin and $6 per share in cash make the stock attractive. A soon-to-be released version of the operating system software for the company’s application switches, code-named “Park City,” may lead to increased hardware sales, writes Lubert, part of what the analyst sees as a “strong product cycle.” The stock currently trades at 17 times Lubert’s 2009 EPS estimate of $1.54, and he thinks the shares are worth 17 times.
R.W. Baird & Co. analyst Kenneth Muth is less sanguine. He says there’s little visibility into the company’s sales because while the U.S. may be on the road to recovery, overseas markets for F5’s wares could “still slide.”
Wedbush Morgan analyst Sanjit Singh is even less optimistic. “While we applaud actions to protect the bottom-line, the significant deterioration of both product and service revenues is concerning,” he writes. Singh has a $25 price target on F5 and thinks the shares are currently fairly valued, suggesting investors should hold off on the stock.
McAdams, Wright, Ragen analyst Sid Parakh, based up near F5 in Seattle, writes that the company “has the financial muscle to sustain a prolonged downturn.” (I don’t think he really meant to say F5 wants to sustain the downturn, probably more like they can sustain themselves in a downturn.) Parakh lowered his price target on the stock from $28 to $26, and maintains a “Buy” rating on the stock.
And Signal Hill’s Erik Suppiger finds plenty to quible with. Despite company management’s optimism about its new products, he estimates that produce revenues declined 15% year over year, which he says is the largest decline in the company’s history. Moreover, some of the deals signed in January were holdovers from December, while February’s bookings were weak and March books, though better than February, were still weak compared to the year-earlier period. Suppiger maintains a “Hold” rating on the stock.
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