F5 Networks Is High Quality And Undervalued, Bernstein Says

In a report published Tuesday, Bernstein analyst Pierre Ferragu maintained an Outperform rating on

, while raising the price target from $145 to $160. The analyst believes that the current expectations from the company, the stock valuation and limited downside offer an attractive entry point into the stock. "F5 grew free cash flows and earnings per share by 23-24 percent per annum since 2009, supported by strong fundamentals. Taking into account the company's growth trajectory and on a free cash flow basis, F5 has been trading at a discount to Tech peers and to the wider market," Ferragu explained. With the impending management transition, along with expectations of slower quarters for the company going forward, driven by strong comps and a weakening product cycle, there appears to be limited further downside risk to the stock. According to the Bernstein report, "The company benefits from a strong platform advantage, driving structural pricing power. Moreover, F5 growth is solely driven by the Datacentre, where we expect continued ~10% volume growth in coming years, which F5 can continue to outperform with improved average revenue per datacentre switch port, as the company's platform is enriched with more and more functionalities and continues to expand its footprint." F5 Network's Application Delivery Controller (ADC) platform offers unparalleled flexibility and performance, while being a "very sticky" platform, with high programmability that leverages a proprietary environment. The company also continues to enrich its platform with new features on a regular basis. "As a result, F5 benefits from unique gross margins (which structurally expanded over the years) and unique pricing, with revenues largely outperforming datacentre volume growth in the last few years," Ferragu added, while expecting Datacentre growth to continue to be robust going forward.