Thursday, April 22, 2010

F5 Networks (FFIV) Results Solid but Market Expectations High

The market is a bit confusing this week.  Since last Friday many stocks have sold off on earnings as expectations finally have reached a point where the price seems to be reflected.  So those specific stocks (that are reporting) have been mostly selling off...while the overall market continues its ever upward move.  Strange.

F5 Networks (FFIV) is a good case example... it reported a very nice quarter (full report here), with modest beats on both revenue and EPS.  But sold off in after hours by about 3%, but that level of selloff should only take the stock to about its 20 day moving average, so no real damage done.  

At $2.20 for full year estimate (year "ending" Sep 2010), the stock is trading at about 30x forward estimates.  In a normal environment I'd consider that relatively rich for the growth rate, but in *this* environment, no price is high enough and valuation is something only used in historical textbooks. It will matter only when it matters... and not a minute before then.

Reuters take on the report:
  •  F5 Networks Inc (FFIV) forecast third-quarter earnings slightly above estimates on strong bookings, but higher expectations pulled the stock down from the heights it had reached following a recent run-up.  The network equipment maker's shares, which have gained 150 percent in the last 52 weeks and are near their 10-year high, were down at $64.8 after market. 
  • For the third quarter, the company, which offers products that handle Internet traffic, sees adjusted earnings of 57 cents to 59 cents per share, on revenue of $214 million to $219 million.  Analysts on average were looking for earnings for 56 cents per share on revenue of $207 million, according to Thomson Reuters I/B/E/S.
  • F5 Chief Executive John McAdam said in a conference call the company was upbeat on outlook for its overall business given the strong sales momentum and a solid pipeline of sales opportunities.   "Overall sales bookings were very strong with book to bill above one in the quarter. This is a first time in five years that our sales book-to-bill ratio was greater than one in the March quarter," he said.
  •  "The strong results give us confidence the company is not only benefiting from improving IT spend environment on the enterprise side ... but also from its new product cycle," Pacific Crest Securities analyst Brent Bracelin said. The company about three months ago introduced a new upgrade of its TMOS platform and that "clearly is helping drive a rebound here in the business," Bracelin added.
  • Product revenue, which made for about 63 percent of the total revenue, rose 38 percent to $129.6 million in the second quarter.  "That's actually the highest growth rate in the group since 2006," Bracelin added.
  • Net income for the second quarter rose to $33.1 million, or 41 cents a share, from $19 million, or 24 cents a share, a year earlier.  Excluding items, earnings were 56 cents a share. 
  • Revenue rose 34 percent to $206.1 million.   EMEA revenue was up 37 percent while Americas was up 40 percent on an year-over-year basis, the company said.
  • Analysts expected earnings of 54 cents a share, excluding exceptional items, on revenue of $199.6 million. 
F5 Networks, Inc. provides technology that optimizes the delivery of network-based applications, as well as the security, performance, and availability of servers, data storage devices, and other network resources. 

[Jan 21, 2010: F5 Networks Executing Well
[Apr 8, 2009: Stimulus Fire Hydrant (Worldwide) Should Benefit Networking Companies/Broadband]
Long F5 Networks in fund; no personal position

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