Arista Poised For Solid 2019 On Strong Networking Spending, Nomura Says

From trading over $300 in August, shares of Arista Networks Inc ANET tested the sub-$200 levels at the start of 2019. Nomura Instinet sees the pullback as a buying opportunity.

The Analyst

Jeffrey Kvaal upgraded Arista from Neutral to Buy and maintained a $260 price target.

The Thesis

A strong Q4 from Arista could portend robust growth in 2019, Kvaal said in a Friday note. Arista's webscale business remains healthy, and routing and enterprise businesses will continue to see share gains.

The webscale spending slowdown in H2'18 was less acute in networking, the analyst said. He attributed the relative outperformance of networking over compute and storage to the fact that networking didn't share in earlier in 2018 the upside in webscale capex.

The analyst noted networking is gaining share as webscale networks get more complex and it's less exposed to falling memory prices.

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Citing checks, Kvaal said networking orders will remain healthy into mid-2019. He also said healthy cloud revenues support long-term cloud spending growth.

"Robust ~40% 100G growth and Arista's strong 100G share (25% vs. ~10% at lower speeds) should prove a 2019 tailwind," Kvaal wrote in the note.

Nomura expects Arista's expansions into routing and enterprise to increase its addressable market, serving as ongoing tailwinds for 2019 and beyond.

The firm estimates 2019 sales growth of 28 percent, ahead of the 22 percent consensus estimate. The 2020 EPS estimate of $11.06 is built on the assumption of a 200-basis point margin dip.

Price Action

Shares of Arista were up 5 percent to $232.45 at time of publication Friday afternoon.