Stifel Upgrades Arista Networks

Stifel upgraded Arista Networks Inc ANET to Buy in a report issued Monday with a $95 price target.

Analyst Sanjiv Wadhwani noted that "our checks show that the company continues to notch up big wins with large financial services companies. These include Barclays (an existing customer, now expanding its use of Arista), CSFB (moving beyond high frequency trading) and finally Bank of America (where Arista had almost no presence previously).”

Wadhwani believed “that one of the biggest variables and focus areas for investors going forward will be gross margins. There are two issues impacting gross margins – percentage of revenues into cloud providers like Microsoft and pricing pressure from Cisco...Still, the company continues to have control over operating expenses and we expect high-teens to low 20 percent operating margins for the foreseeable future.”

The report concluded that “while the stock continues to be on the expensive side (at an EV/2015 sales multiple of 7x), its growth rate is an outlier. Our data center comp group includes names such as Palo Alto Networks, FireEye and Nimble Storage. We believe that Palo Alto Networks is the closest comp, trading at an EV/2015 sales multiple of 8.2x.”

The $95 price target was based on 7x EV/2016 sales.

Arista Networks recently traded at $83.25, up 2.4 percent.