F5 Can Deliver 10%+ EPS Growth On Expanding Margins Despite Macro Woes: Analyst

Needham analyst Alex Henderson reiterated a Buy rating on F5, Inc FFIV, raising the price target to $180 from $175.

The company recently reported 4% revenue growth in the third quarter, to $702.64 million beating the analyst consensus of $699.39 million.

While macro pressures have weakened demand and revenue growth in the near term, F5 is still expanding GM and Operating Margins, and the analyst believes that EPS is likely to grow at or near double-digits in the foreseeable future.

Despite the current macro conditions, F5 can deliver 10%+ EPS growth on expanding margins while returning capital to shareholders, the analyst adds.

F5 has now worked off its Systems backlog and reiterated that by shipping to the Backlog, the analyst notes that Systems have a 6%-8% headwind in FY24.

The company has a strong Balance Sheet with $11.55/share in cash, nearly $1 billion in authorized share repurchases, and superb cash flow generation, Henderson adds. 

Longer-term, the company is a strong play on Kubernetes, modern application workloads, and Security, notes the analyst. 

When the macro improves and overdue replacement cycles occur, Henderson expects the revenue to re-accelerate.

Based on the above, the analyst increased EPS Estimates for FY23 to $11.39 from $11.02 and for FY24 to $12.38 from $12.11.

Price Action: FFIV shares are trading higher by 6.4% to $159.85 on the last check Tuesday.