Wednesday, October 27, 2010

F5 Networks (FFIV) Enjoying a "Riverbed" Day on Good Earnings & Small Buyback

Last week after Riverbed Technology (RVBD) posted blowout earnings, I was looking at 2 names I had closed out as they broke down technically post Equinix debacle early in the month: F5 Networks (FFIV) and Acme Packet (APKT).  My view was that the computers (and momo humans*)  would rush into these stocks as 'derivative' plays even though their business has little to do with Riverbed.  Both had been big winners for us this year - at the time F5 Networks was still below some key moving averages, while Acme was above - further F5 had earnings sooner (by a few days) than Acme.  I was not going to buy a big position in either due to earnings risk, but I ended up choosing Acme mostly due to the technical setup in the morning when I was buying, even though F5 is better known by the speculator class.  However, by the end of the that day of purchase (Thursday) F5 had broken over the key technical levels it needed, so both stocks were in good shape a few hours after my entry.   Since then both stocks have been running closely neck and neck in terms of performance - about 7-8% each.  Certainly nothing to be upset about for 3 days of 'work.

However, now after F5's report last evening and its "Riverbed" performance today, I surely picked the wrong side of the coin as there is no way Acme is going to do the same thing when it reports tomorrow night.  Again, one should never complain about 8-10% gain in a week, but of course you want to turbocharge results as best as possible.  That said I kept my position size down due to the earnings risk so the effect to the entire portfolio would not have been overbearing either way.

*speaking of the speculator class, last night on "Fast Money" both the host and one of the "expert traders" said F5's competitor is Akamai Technologies (AKAM) - this is how I know most people trading these stocks are completely clueless and just chasing performance and not doing any research.   But why do research when you are on a channel whose job is to promote the stock market?  I digress...

A quick look at earnings and the stock buyback announcement.  The buyback is minor at about 2% of shares outstanding, and many times companies announce buybacks and don't follow through so it's a minor detail in these eyes.    As for EPS analysts were in for 71-72 cents cents and F5 did 78 cents.  I am frankly surprised by the reaction for a 10% beat, but hot money continues to drive into a select group of stocks and scorch bears.   F5 ends the year this quarter so they made just over $2.50.    Next year analysts are in for just under $3.10 - let's say they do $3.30-$3.35; at current price we have a forward PE of 35ish and trailing 46.  

Gross margin remains at astounding 81.5%.
(Full report here)
Some quick hits
  • F5 Networks Inc. on Tuesday reported a strong fourth-quarter on improved industry trends, prompting the network equipment maker to issue first-quarter guidance above expectations.
  • The company said it earned $48.2 million, or 59 cents per share, for the quarter. That's up from $28.4 million, or 36 cents per share, in the same quarter last year. Adjusting for stock-based compensation and a one-time legal settlement, the company earned 79 cents per share versus 50 cents per share in the prior period.
  • Revenue rose 10 percent to $254.3 million.
  • The results beat Wall Street expectations. Analysts polled by Thomson Reuters expected the company to earn 72 cents per share on revenue of $245 billion.
  • F5 CEO John McAdam said that during the fourth quarter the company benefited from stronger demand, in part from a trend toward data center consolidation and cloud computing.
  • McAdam said that the strength of the current business will, barring another broad economic setback, continue to drive business through its 2011 fiscal year. The company said it expects to earn 62 cents to 64 cents per share for the first quarter, or 80 to 82 cents per share on an adjusted basis. Analysts anticipate 73 cents per share.

  • F5 also said its board approved the repurchase of up to $200 million of the company's outstanding common stock.

Market Share
  • F5 Networks picked up about 8 percent market share in its key application delivery controller (ADC) market in fiscal 2010, the company said on a call with analysts. The company sells about 95 percent of its product and services in the ADC market and competes with Cisco Systems (CSCO) among others.

F5 Networks is the global leader in Application Delivery Networking (ADN), focused on ensuring the secure, reliable, and fast delivery of applications.

[Oct 8, 2010: Goldman Sachs Moves F5 Networks to "Sell"]
[Sep 7, 2010: [Video] F5 Networks on the Rise]
[Aug 27, 2010: IBD - F5 Networks Leads in Key Cloud Market]
[Jul 22, 2010: F5 Networks Earnings]

Long Riverbed Technology, Acme Packet in fund; no personal position

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