Extreme Networks Poised For A Strong Comeback: Analyst Predict Bright Future In CY24

Needham analyst Alex Henderson reiterated Extreme Networks Inc EXTR with a Buy and a $23 price target.

Extreme is likely to have a slow start to CY24, with tough compares, but as the year progresses, the analyst expects growth to reassert itself and margin expansion to drive EXTR shares higher. 

The inventory correction is currently masking the growth, but Henderson looks for this to normalize over the next several quarters. 

The analyst forecasts solid operating margin expansion and robust cash flow as this occurs. 

With end-market demand healthy, the pipeline robust, and share gains continuing, Henderson expects a growth rebound as the year unfolds. 

The analyst noted that Extreme will deliver 5-10% growth over the near term and 10%+ over the longer term. 

In CY24 and CY25, the bigger story is margins. Extreme has 400-600 bps of operating margin expansion in its headlights. Henderson made EXTR his single best idea for CY24 in Networking.

Investors were disappointed by the CY3Q Print and 4Q outlook reset. Yet the analyst noted an over-sold stock with a significant margin expansion story not tied to the growth rate with 500-600 bps expansion in the headlights and a technology and distribution advantage that should rebound growth to double-digits once the inventory correction clears.

Extreme sees the deals that are pushed out as a timing issue; the deals are not lost, just delayed. The pipeline remains strong, even as the CFO carefully assumes closure rates are lower than usual due to the macro and inventory conditions.

Extreme is gaining a share in technology and TCO with its Universal platform. They are winning more distribution, seeing more at-bats, larger deal sizes, and higher win rates. 

EXTR is selling at a discount to Cisco Systems, Inc CSCO, Juniper Networks, Inc JNPR, and F5, Inc FFIV with better growth and strong EPS and cash flow growth.

The analyst projects Q2 revenue and EPS of $318.1 million (consensus $320.5 million) and $0.28 (consensus $0.29).

Price Action: EXTR shares are trading higher by 1.35% to $17.98 on the last check Thursday.

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