Investors Sell Arista Networks As Analysts Say 'Buy'

Arista Networks Inc ANET reported Q3 results Thursday that mostly pleased analysts. Investors reacted adversely, however, and sent shares down by more than 11 percent.

On Wednesday, Imperial Capital had initiated coverage with an Outperform rating and $95 price target as the stock traded at $86.39. By Friday afternoon the stock traded at $77.14, down 11.59 percent from Thursday's close.

Below are comments from some analysts on the stock after the Q3 announcement along with current ratings and price targets.

Bank of America - Buy, $100 price target

"Arista reported revenues and EPS that solidly beat estimates. Revenues grew 13 percent QoQ and 53 percent YoY to $155.5mn, above consensus of $148.5mn. EPS grew 14 percent QoQ and 51 percent YoY to $0.40, above Street estimates of $0.29. Sales guidance for 4Q was $164mn (at the midpoint) topping expectations of $161mn. Management reported balanced growth across its four target verticals: cloud titans, financial institutions, tech 2.0, and Service Providers. Arista’s growth can be attributed to its low-cost, high-performance products and strong dynamics within the purpose-built data center switching market."

Stifel - Buy, $95 price target

“Arista delivered a solid Q3, with a nice beat and raise. All major verticals – webscale, technology, financial services and service providers – did well during the quarter. Operating margins were particularly strong (as we eluded to in our upgrade) – with operating margins coming in at 27.0 percent, which continues to be impressive for a switching company. Gross margins fell, as the company predicted, due to mix of revenue contribution from webscale customers, overhead costs, as well as continued pricing pressure from Cisco. However, we believe that the company has likely seen the worst in terms of pricing pressure from Cisco (while pricing pressure is unlikely to ease, it unlikely to get any worse).”

Morgan Stanley - Overweight, $88 price target

“Management's market commentary was consistent with our own channel checks and our October 2014 CIO Survey, where we found strong demand for data center switching. We remain confident in Arista's ability to gain share in the data center switching market based on its price/performance. While management admitted that their focus on specific verticals will contribute to quarter-to-quarter lumpiness, they have been seeing more uniform buying across verticals over the last couple of quarters. Management also indicated that the pricing environment remains relatively benign, with little pressure to go below Arista's already-aggressive port pricing, which should bolster confidence in gross margin sustainability.”