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F5 Networks, Inc. Message Board

  • lburgguy999 lburgguy999 Jul 8, 2013 9:48 AM Flag

    Great Barrons Article this weekend on FFIV

    Read the article; it spells out the lower margin product mix situation that is playing out. 7/24 is coming. Happy to be short this and VMW. I think this could drop 15% or more in a day.

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    • Looks like Barrons is telling investors to short this as what they do is becoming extinct. I'll short this to 0 now.

      Sentiment: Strong Sell

    • Was this the article you are talking about? Sounds very bullish to me.

      A decade ago, Fortune 500 companies sought to establish distinct computer networks for each of their operations. Employees interacted on one network, clients on another, and telecom systems on yet another. These days, that approach has been replaced by the use of one massive network, which enables the company's IT managers to more closely integrate all of the various communications and computing processes on one platform, which can also save a great deal of money in terms of hardware and software purchases.

      This company, a leader in the delivery of network software that controls applications, security software and other mission-critical systems across an enterprise, has surely benefited from the trend. Sales have surged from $400 million in fiscal 2006 to nearly $1.4 billion in fiscal 2012.

      Yet a move to upgrade many of its software components this year has led to a slowdown in sales that has led some to wonder if this company is now too big to grow at a solid pace. After all, sales are expected to rise just 5% in the current fiscal year (to around $1.46 billion).

      Yet that growth slowdown may prove short-lived. In the current fiscal fourth quarter, F5 is releasing "Big IQ," which should give IT managers much more functionality as they manage massive networks. That release, along with some key hardware upgrades on F5's "5000" and "7000" systems, is expected to lead to double-digit sales growth in the fiscal year that starts in October.

      Despite the recent slowdown, analysts at Merrill Lynch remain bullish: They think "the company maintains one of the better (long-term) growth rates in the industry and one of the better margin structures (80% gross margins and 32-33% operating margins)," which underpins their $95 price target. That's where shares stood back in early March, before a recent pullback below $70.

      As a further catalyst, Cisco Systems (CSCO) has recently exited the $200 million application delivery control (ADC) market, and "F5 is in the best position to capture the lion's share of this incremental share of this market," according to analysts at Morningstar, who peg the fair value of this stock at $100.

 
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