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F5 Networks (FFIV) to Post Q2 Earnings: What's in the Cards?

Zacks Equity Research

F5 Networks Inc. FFIV is set to report second-quarter fiscal 2019 results on Apr 24.

The company’s surpassed the Zacks Consensus Estimate in each of the trailing four quarters, delivering average positive earnings surprise of 5.33%.

F5 Networks is benefiting from strong software growth, backed by a solid uptick in public cloud and security offerings. Strong momentum in the security market is expected to drive adoption of its security solutions.

For the fiscal second quarter, F5 Networks expects revenues in the range of $543-$553 million. The Zacks Consensus Estimate stands at $546.7 million, indicating growth of 2.51% from the year-ago reported figure.
 
Moreover, the company anticipates non-GAAP earnings per share in the band of $2.53-$2.56. The consensus estimate of $2.55 has been stable lately ahead of the company’s earnings release.

Let’s see how things are shaping up for the upcoming announcement.

Factors at Play
    
Growth in services and software solutions segment is a key driver for F5 Networks. For the fiscal second quarter, the company’s traction in public cloud deployments, given the surge in demand for security in the multi-cloud environment, is a tailwind.  

Also, strength in product revenues is likely to be a positive. Adoption of flexible consumption models is expected to continue, driving demand of company’s new cloud offerings, including the BIG-IP Cloud Edition.

For the fiscal second quarter, robust sales to enterprise customers are expected. Higher application traffic with 5G architectures is also likely to be a key driver.

However, softness within service providers vertical, as some of its larger customers are planning their next-generation application architectures, remains a concern. Weakness in the telecom segment is expected to continue into the second fiscal quarter.

Higher spending on cloud and security, the largest growing areas of its business, is expected to keep the margin slightly under pressure.

Notably, Cisco Systems CSCO poses the biggest competitive threat to the company, given its dominance in the overall networking market. In February this year, Cisco expanded its partnership with Telenor Group over cybersecurity, cloud and the digital workplace, further strengthening its position in the security market.

Further, Airtel’s recent partnership with Cisco to build India's largest 5G-ready, IP-based fully automated network has put further pressure on F5 Networks’ market share.

Moreover, the string of announcements throughout the fiscal second quarter by Juniper Networks JNPR on efforts in the networking market does not bode well for F5 Networks.

F5 Networks, Inc. Price and EPS Surprise

F5 Networks, Inc. Price and EPS Surprise | F5 Networks, Inc. Quote

What the Zacks Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

F5 Networks has a Zacks Rank #4 and its Earnings ESP is 0.00%.You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stock to Consider

Here is a stock which you may consider as our model shows that it has the right combination of elements to post an earnings beat in the upcoming release:

Acacia Communications, Inc. ACIA has an Earnings ESP of +5.73% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

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