F5 Networks Reports Q1 EPS Beat, Revenue Miss: The Sell-Side Reacts

F5 Networks, Inc. FFIV, a global specialist in application services and application delivery networking, reported mixed fiscal first-quarter results Wednesday. Here's how analysts on the Street reacted.

The Analysts

• Bank of America's Tal Liani maintains a Buy rating on F5 Networks with a price target lowered from $217 to $205.
• Morgan Stanley's James Faucette maintains at Underweight, unchanged $130 price target.
• MKM Partners' Michael Genovese maintains at Neutral, price target lowered from $190 to $175.
• RBC Capital Markets' Matthew Hedberg maintains at Sector Perform, unchanged $166 price target.
• Raymond James' Simon Leopold maintains at Market Perform.

Bank Of America: What To Like

F5 Networks' mixed earnings report and notable for an EPS beat and revenue miss, Liani said in a note.

On the positive side, the company did the following, the analyst said:

• Showed 3.9-percent revenue growth year-over-year.
• Software sales grew for the third consecutive quarter.
• New software consumption models contributed to software adoption.
• The security business remains a key focus and growth opportunity.
• The company won multiple Advanced WAF contracts.
• Management expects no slowdown from enterprise or government customers aside from the current shutdown.

Morgan Stanley: Skeptical On Roadmap

F5's management team displayed a positive stance on its software roadmap, but investors have reason to be skeptical due to a decline of less than 1 percent in appliance sales, Faucette said in a note.

The decline isn't quite notable, but it could accelerate in the coming quarters as the iSeries cycle matures and many large companies conclude their upgrades, the analyst said. 

F5 said it hasn't seen any weakness in enterprise spending, but the company acknowledged during the conference call it is "watching the macro environment and being a bit cautious about future plans."

Related Link: F5 Networks Customers Are Migrating To The Public Cloud, Analyst Says In Downgrade

MKM: Transition Taking Too Long

F5's 7-percent EMEA revenue growth and 11-percent Asia-Pacific sales growth shows the company is performing well in international markets, Genovese said in a note.

At the same time, revenue in the U.S. market was flat due to the Multi-Cloud Application Services transition, which is taking "somewhat of a pause" as new architectures are evaluated by customers, the analyst said. The longer-than-expected transition creates concerns that management may not be able to achieve its software revenue growth guidance of 30-35 percent by fiscal 2020 at the latest, he said. 

RBC: Longer-Term Constructive

F5's mixed earnings report and ongoing software transition — coupled with management's guidance, which assumes a reopening of the federal government — should have investors "incrementally more cautious," Hedberg said in a note. Over the longer-term, there is reason for investors to be constructive on management's 30-35 percent software revenue growth guidance, he said.  

Raymond James: Dividend Needed

F5's stock would benefit from a dividend, although the likelihood of this happening is minimal in the near-term, Leopold said in a note. The company did announce a new $1-billion share buyback authorization, but if $75 to $100 million of that were allocated to the dividend, it would give investors a 3-4-percent yield — which would make the stock more desirable to a larger group of investors, the analyst said. 

Price Action

F5 Networks were down 2.22 percent at $156.09 at the close Thursday. 

Related Link: Citi: F5 Networks Shares Fully Valued After Recent Rally