F5 Networks Downgraded By PacCrest Amid Cloud Pressures

Shares of F5 Networks, Inc.

were down more than 2 percent after Pacific Crest downgraded the stock to Sector Weight from Overweight amid cloud pressures. Apart from valuation, the brokerage said the mix shift to subscription offerings may partially offset a second-half product recovery, and cloud pressures continue to curb new onpremise IT upgrades. "Going forward, we see an increasing probability that M&A will have a greater role in defining the "third act," particularly given that F5 has excess cash reserves of $1 billion and robust operating cash flows that exceed $600 million annually," analyst Brent Bracelin wrote in a note. Recommending investors to revisit the stock in early 2017, the analyst noted that Shasta appliance refresh cycle is not expected to drive a return to double-digit product growth, at least not this year. Though, the company's potential efforts to address the cloud deliver and security (CDS) segment of the market could help its revenue grow above $2 billion, Bracelin says "it may take time and new leadership to fully execute." Bracelin noted that the risk-reward looks balanced given the stock has gained 25 percent from the February lows and now sits 11 percent higher for the year, "investor optimism for a product cycle driven recovery has started to creep into the share price." For the full year, the analyst sees earnings of $7.13 a share on revenue of $1. 979 billion, while consensus estimate calls for EPS of $7.11 on revenue of $1.988 billion. Shares of F5 Networks were currently down 2.38 percent to $104.78.