F5's Software Business Remain Vulnerable To Supply Chain & Macro Headwinds, Analyst Says Post Q1 Results

  • KeyBanc analyst Thomas Blakey maintained F5 Inc FFIV with an Overweight and lowered the price target from $190 to $182.
  • The re-rating reflected macro-related pressures on F5's software business, particularly new software business, tied to considerable software project delays at customers
  • The analyst's FY23E EPS remains relatively unchanged on opex controls and expanding GM, and lowered FY24 forecasts out of conservatism due to NT macro pressures and inconsistent results from the company. 
  • Blakey views F5 as well positioned to benefit from secular growth in the application, security, and infrastructure monetization in hybrid and multi-cloud environments LT and views the company as a sustainable, profitable grower. 
  • Needham analyst Alex Henderson maintained a Buy and lowered the price target from $200 to $175.
  • F5 is seeing much softer than expected Software Revenue growth with new Customer and Project Software down double digits and SW renewals on track, resulting in just 2% Software growth in 1Q23. 
  • Conversely, better Service Renewals and better Systems shipments offset the weakness in Software. 
  • The analyst expects strong software growth and declining Data Center Appliance sales to result in a mix shift toward higher growth Software over time. 
  • F5 expects this mix to persist in FY23, yet still expects to produce 9%-11% Revenue growth and double-digit EPS growth. 
  • The analyst revised his Revenue and EPS estimates for FY23 and FY24 to reflect the macro conditions. 
  • Blakey also lowered the price target to reflect the erosion in the mix and a reduction in the Systems backlog visibility.
  • Credit Suisse analyst Sami Badri maintained a Neutral and lowered the price target from $173 to $166.
  • Following FFIV's results and 2Q23 guidance, the analyst adjusted his 2Q23 and FY23 revenue and EPS to reflect better systems revenue and slower software growth.
  • The analyst identified FFIV as a critical network vendor in the enterprise transition to multi-cloud, boasting technologically differentiated solutions but remaining reserved on supply chain dynamics impacting GMs with 1H23 still a Systems revenue bottom.
  • Price Action: FFIV shares traded lower by 1.14% at $144.80 on the last check Wednesday.
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