4 F5 Networks Analysts Tackle Subscription Model, Growth Trajectory, Valuation

Shares of the networking products company F5 Networks, Inc. FFIV gained 6.2% Tuesday after it reported forecast-beating earnings for the third quarter. 

The F5 Networks Analysts: Needham analyst Alex Henderson reiterated a Buy rating on F5 Networks shares and increased the price target from $255 to $265.

Morgan Stanley analyst Meta Marshall maintained an Overweight rating and $220 price target.

RBC Capital Markets analyst Matthew Hedberg maintained a Sector Perform rating and increased the price target from $200 to $215.

Raymond James analyst Simon Leopold maintained a Market Perform rating.

Why Needham Is Bullish On F5 Networks: F5 Networks' software products revenues rose 34% year-over, notwithstanding a tough comparison, Henderson said.

The company said it is seeing acceleration of larger deals for NGINX and upsell of new capabilities with NGINX App Protect, API Gateway and Application Controller Products, the analyst said. 

F5 Networks, he said, expressed confidence in meeting or exceeding its software growth targets.

Needham's bullish stance on F5 is predicated on its NGINX and Shape acquisitions, which Henderson said will help improve the company's competitive position and materially shift it to a software-driven subscription model. 

"We see the good news continuing," the analyst said. 

Related Link: Why This F5 Networks Analyst Is Turning Bearish

F5's Growth Story Intact, Morgan Stanley Says: The software transition story is continuing to play out and this will likely materialize into multiple rerating, Marshall said.

"We think that FFIV's ability to grow the software business by capturing hardware / software transitions of ADCs as well as leveraging the installed base to cross-sell software / security remains differentiated and should warrant a multiple more in-line with software peers," the analyst said. 

A 35%-40% software compounded annual growth rate over the next couple of fiscal years remains achievable, she said.

The sequential growth evident in the third quarter and the commentary of increased attached rates are encouraging, Marshall said.

The software growth story and expansion of use cases remains intact, particularly with the recent Volterra acquisition, she added.

F5 Shares Fairly Valued, RBC Says: F5 Networks delivered an improved quarter and guidance and noted a healthy IT spending environment supported by strong product and software growth, Hedberg said.

The company raised the guidance for the fourth quarter and the fiscal year 2021. F5 was bullish on its Horizon 2 targets, which implies an acceleration in software growth, the analyst said. 

RBC is of the view the shares are fairly valued. The focus going forward will be on the software trajectory and the potential for updated Horizon 2 targets on the fourth-quarter earnings call, according to RBC. 

RayJay Sees Deceleration In F5's Growth Ahead: Software and service sales exceeded estimates and hardware sales met Leopold said. The hardware sales growth of 14% year-over-year remained stubbornly healthy, he said. 

"We think some of this strength represents a post-pandemic recovery cycle that will inevitably reverse," the analyst wrote in the note.

Overall growth will likely decelerate in fiscal year 2022 as the cyclical aspects revert, according to RayJay. 

FFIV Price Action: F5 Networks shares were up 6.2% at $204.57 at the close Tuesday. 

Related Link: Activist Investor Elliot Management Buys Stake In F5 Networks: WSJ