F5 Networks Downgraded At Piper Jaffray; Stock Is Fairly Valued

In a report published Monday, Piper Jaffray analyst Troy D. Jensen downgraded the rating on

from Overweight to Neutral, while maintaining a $130 price target. The analyst believes that the stock is fairly valued at present. "We believe the most important variable regarding F5's stock price is the sustainable product growth rate, and this has been volatile over the past few years. It is our belief that F5 can sustain low-teens product growth and mid-teens earnings growth over the next few years," Jensen stated. Although the company reported a decline in its year-on-year product growth rate for the fourth consecutive time in the March quarter, the analyst believes that F5 Networks is likely to be able to post product growth in the low-teens for the next few years, driven by growth in the ADC market and share gains by the company, which in turn could drive organic ADC sales growth. According to the Piper Jaffray report, "F5 has been very clear and consistent with respect to op margin expectations and we believe the company will continue to target 36-38 percent op margins over the next several years. With little to no op margin expansion expected, we believe F5 can grow earnings in the mid-teens, which equates to low-teens revenue growth coupled with modest operating margin expansion." The announcement by F5 Networks that CEO Manny Rivelo would replace the outgoing CEO, John McAdam, could create some uncertainty for the stock.