Cantor's Brian White: F5 Networks Has 'Modest Upside' This Quarter

Shares of F5 Networks, Inc. FFIV were rising on Tuesday ahead of the company’s third quarter financial results, scheduled for after the market closes on Wednesday. This will be the first earnings report since Manny Rivelo took over as the company’s CEO on July 1, replacing John McAdam.

In a report issued Tuesday, Cantor Fitzgerald analysts Brian White and Isabel Zhu preview the results, which they expect to come in pretty much in-line with consensus. They think F5 will marginally beat the firm’s revenue estimate of $479.2 million (up 9 percent year-over-year) and its pro forma EPS projection of $1.59 -- below consensus of $482.58 million and $1.60.

Investors should remember, too, that management guided sales of $475 million-$485 million with EPS in the $1.57-$1.60 range.

For the fourth quarter, White and Zhu expect the company to offer somewhat conservative guidance, including revenue of $502.2 million (versus consensus of $504 million) and pro forma EPS of $1.67 (versus consensus of $1.71).

FX Headwinds, But A Strong Market Position

For the third quarter, Cantor projects 3 percent year-over-year Product sales growth (to $244.1 million) and 16 percent year-over-year Service sales growth, to $235.1 million.

The analysts explain that F5 often prices its products in U.S. dollars. As such, a strong dollar can make its products more expensive outside the U.S., thus representing a modest headwind. Outside of the macro backdrop, the analysts believe “F5 has never been better positioned in the application delivery controller (ADC) market with more innovative solutions relative to its peers, more diverse consumption models, stronger partnerships (e.g., Cisco, VMware) and a bigger push into the cloud, while also enjoying a strong customer appetite for the company's security solutions and a growing importance in next-generation data centers.”

Cantor maintains a Buy rating and $140.00 price target on shares. The analysts add, “we continue to believe F5 represents an attractive GARP stock.”