BMR Take: This was just an excellent quarter and guidance from F5, and we're surprised the initial investor reaction hasn't been more positive. Similar to comments from IBM (IBM, $175.77, Spy) and others, China was a weak spot, but the company was easily able to overcome that with strong results elsewhere as its refreshed product line-up has been well received. Notably, product sales, which had been a drag, returned to growth and easily beat analyst expectations.
Guidance was also very strong, especially considering how the shutdown of the federal government to start the quarter is likely to negatively impact sales to that vertical. However, the company is doing very well in both security and Traffix Diameter solutions for LTE rollouts, as telecom spending ramps up.
While margin guidance was questioned, the margins in Q4 were very strong and the small drop as it adds consulting work is not an issue to be concerned about in our book. Meanwhile, the consulting could help drive growth in other areas down the road, so we view this as a positive.
Given the strong results and guidance, we will boost our target from $100 to $110, which is a 16x multiple on the FY15 (ending September) consensus of $5.77, excluding its over $16 per share in cash. Our "Buy" rating remains unchanged.