What Does Infoblox Need To Hit Growth Targets? Morgan Stanley Tries To Answer

Infoblox Inc BLOX shares were up 12 percent at $23.87 on Friday morning after the company reported second-quarter results that beat expectations.

Morgan Stanley commented on the better than expected second-quarter results and third-quarter guidance. The firm attributed the beats to "the start of a product refresh cycle, helped by pull-through on security products." Analysts think that Infoblox needs to make investments in order to achieve the growth objectives it stated.

This is pushing Morgan Stanley's long-term model; the firm is increasing its price target from $18 to $21, but maintaining an Equal-Weight rating on the stock. According to the report, "valuation gives full credit for 20%+ CAGR & 20-22% LT margin targets, despite increased investment and uncertainty."

The company is expiring support for its early edition products (those acquired before 2012) by the end of 2015. "As a result, the company expects to see accelerated product sales for the next 4-5 quarters due to customers upgrading their equipment. While the company did not size the contribution this quarter (except to say it was less than ~$6mm in product sales) or what the potential installed base expected to upgrade was, we would note that it does not seem unreasonable to assume upgrades make up 10-20% of their product revenue for the coming year."