Earnings Preview: F5 Networks Inc. - Analyst Blog

F5 Networks Inc. (FFIV) is scheduled to announce its first quarter fiscal 2011 results on January 19, 2011, and we observe limited movements in analyst estimates at this point.

Fourth Quarter Overview

F5 Networks delivered decent fourth quarter 2010 results, with adjusted earnings per share of 61 cents per share beating the Zacks Consensus Estimate of 55 cents.

F5 Networks reported fourth quarter revenues of $254.3 million, up 45.2% from the year-ago period. The quarter's revenue surpassed the company's guided range of $242.0–$247.0 million and the Zacks Consensus Estimate of $248.0 million. According to industry sources, the growth in revenue was attributed to strong demand for the company's products and market share wrested from Cisco Systems Inc. (CSCO).

A stable pricing environment and an improved product mix helped the quarter's gross margin improve 240 basis points (bps) from the year-ago quarter. Operating margin surged 640 bps from the year-earlier period.

Cash, cash equivalents and short-term investments totaled approximately $428.5 million and cash flow from operations was $86.0 million. F5 Networks repurchased $75.0 million worth its outstanding shares.

Guidance

For the first quarter of fiscal 2011, F5 Networks expects revenues of $265.0 million to $275.0 million. On a GAAP basis, earnings per share are expected to range between 62 and 64 cents. Excluding stock-based compensation expense, the company guided non-GAAP earnings per share in the range of 80 cents to 82 cents.

Agreement of Analysts

Out of the twenty-three analysts providing estimates for the first quarter, only one moved upward in the last seven days. Similarly, two analysts moved upward in the last seven days for fiscal year 2011. There was no downward revision for the quarter or the fiscal 2011.

The limited number of changes to estimates also point to the fact that there was no major catalyst during the quarter that could drive results. Consequently, the analysts are sticking to the estimates projected following fourth quarter earnings.

Magnitude of Estimate Revisions

There were no changes to analyst estimates for the first quarter or fiscal 2011 over the past 30 days. However, we noticed an improvement of 9 cents and 36 cents in the Zacks Consensus Estimate for the first quarter and fiscal 2011, respectively, since the fourth quarter earnings announcement. The reason for the upward movement could be the surge in product demand to serve the growing need for server virtualization and cloud computing within organizations.

Recommendation

Better execution and focus on enterprise and service providers has placed F5 Networks well in the application delivery controller market and helped it take share from Cisco. F5 Networks is also keen on expanding its cloud exposure. Moreover, analysts expect F5 Networks to continually grow revenues in 2011 and 2012, aided by growth in the total available market (TAM). The TAM has already touched $4.0 billion in 2010 and it is now expected to reach $9.0 billion by 2014.

Currently, F5 Networks has a Zacks Rank of #2 implying a short-term Buy recommendation.

 
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