5 Reasons Why Arista Is Now Piper Jaffray's No. 2 Networking Pick

Some of the litigation, expectation and valuation fears that kept Piper Jaffray on the sidelines with Arista Networks Inc ANET have subsided, prompting the firm to turn bullish on the stock. 

The Analyst

Analyst James Fish upgraded Arista from Neutral to Overweight and increased the price target from $268 to $315.

The Thesis

Arista is likely to turn in a positive second-quarter earnings report Aug. 2, Fish said in a Monday note. (See the analyst's track record here.) 

Demand trends remain strong, Fish said, citing Q2 channel checks. The analyst forecast revenue of at least $519 million, ahead of the $510 million consensus estimate for the quarter. 

"We believe investor expectations are not as high as past quarters, presenting a potential near-term catalyst on Aug. 2," he said. 

Industry data suggests a shift in spending and market share, Fish said.

Citing recent survey results from Cisco Systems, Inc. CSCO, the analyst said datacenter switching losses will continue to Arista. Concerns around whitebox switching, which represents less than 3 percent of the market, are overblown, the analyst said. 

"We believe Arista has the potential to become 'software-only' in time with cEOS."

Major verticals for Arista should grow capex by 30 and 7 percent, respectively, i 2018 and 2019 as customers upgrade to 100G and 200G, according to Piper Jaffray. 

Fish expressed optimism regarding Arista's campus product announcements in May, as its Q2 survey suggested 10 percent of deals include a newly launched campus product.

Recent legal proceedings are favorable for Arista, the analyst said. 

Lowered sentiment, expectations and valuation work in favor of the networking company, Fish said. 

"We are moving ANET to our No. 2 pick in networking for now."

The Price Action

Arista shares have gained 11.4 percent year-to-date.

Related Links:

As Cisco Moves To A Subscription-Based Model, Goldman Sachs Initiates With A Buy

Vetr Crowd Downgrades Cisco

Posted In: James FishNetworkingPiper JaffrayAnalyst ColorUpgradesPrice TargetAnalyst Ratings

Ad Disclosure: The rate information is obtained by Bankrate from the listed institutions. Bankrate cannot guaranty the accuracy or availability of any rates shown above. Institutions may have different rates on their own websites than those posted on Bankrate.com. The listings that appear on this page are from companies from which this website receives compensation, which may impact how, where, and in what order products appear. This table does not include all companies or all available products.

All rates are subject to change without notice and may vary depending on location. These quotes are from banks, thrifts, and credit unions, some of whom have paid for a link to their own Web site where you can find additional information. Those with a paid link are our Advertisers. Those without a paid link are listings we obtain to improve the consumer shopping experience and are not Advertisers. To receive the Bankrate.com rate from an Advertiser, please identify yourself as a Bankrate customer. Bank and thrift deposits are insured by the Federal Deposit Insurance Corp. Credit union deposits are insured by the National Credit Union Administration.

Consumer Satisfaction: Bankrate attempts to verify the accuracy and availability of its Advertisers' terms through its quality assurance process and requires Advertisers to agree to our Terms and Conditions and to adhere to our Quality Control Program. If you believe that you have received an inaccurate quote or are otherwise not satisfied with the services provided to you by the institution you choose, please click here.

Rate collection and criteria: Click here for more information on rate collection and criteria.