Earnings Preview: Citrix Systems

Zacks

Citrix Systems Inc. (CTXS) is scheduled to release its second quarter 2012 results on Wednesday, July 25, after the closing bell. The current Zacks Consensus Estimate for the second quarter is pegged at 47 cents, representing an annualized decline of 5.03%.

With respect to earnings surprises, Citrix Systems has outperformed the Zacks Consensus Estimate in the last four quarters with an average earnings surprise of positive 6.38%. This implies that the company has outdone the Zacks Consensus Estimate by the same magnitude over the preceding four quarters.

First Quarter Recap

On April 25, 2012, Citrix Systems reported its first quarter 2012 financial results. GAAP net income was $68.3 million or 36 cents per share compared with $73.5 million or 39 cents per share in the prior-year quarter. Quarterly adjusted EPS of 45 cents was well ahead of the Zacks Consensus Estimate of 39 cents.

Quarterly net revenue was $589.5 million, up 20% year over year and above the Zacks Consensus Estimate of $562 million. Global shift toward virtualization and cloud computing are facilitating the company to post solid results.

Gross margin in the first quarter of 2012 was 85.4% compared with 87.8% in the year-ago quarter. However, quarterly operating margin was 13.7% compared with 16.5% in the prior-year quarter.

Agreement of Estimate Revisions

In the last 30 days, out of the 15 analysts covering the stock, none increased the EPS estimate for the second quarter of 2012, but one analyst decreased the estimate for the same period. Likewise, for the third quarter of 2012, out of the 15 analysts covering the stock, none changed their estimates.

For fiscal 2012, one out of the 14 analysts slashed the EPS estimate during the last 30 days. Likewise, for fiscal 2013, only one out of the 15 analysts covering the stock reduced the EPS estimate in the last 30 days.

Magnitude of Estimate Revisions

During the last 30 days, the current Zacks Consensus Estimate for both second and third quarter of 2012 was a penny above the previous EPS estimates of 46 cents and 59 cents, respectively.

Likewise, for both fiscal 2012 and 2013, the current Zacks Consensus Estimate increased by a penny from the previous estimates of $2.27 and $2.68, respectively

Earning Surprises

In the previous quarter, Citrix Systems reported EPS of 45 cents, which beat the Zacks Consensus Estimate by 6 cents. The current Zacks Consensus Estimates for the ongoing and the upcoming quarter contain a 0.00% upside potential (essentially a proxy for future earning surprises). However, fiscal 2012 and 2013 reflect a downside potential of 1.32% and 3.72%, respectively.

Our Recommendation

Strong financial outlook along with moderate economic recovery and increasing trend for globalization will drive growth, in our view. However, sluggish economic growth coupled with stiff competition from Vmware, Inc. (VMW) may act as headwinds for the company going forward.

Currently, Citrix Systems has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

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