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Investors Positive on Arista, Citing Cisco Weakness

Pierce Crosby

The positive buzz about Arista Networks became shriller on Tuesday when a handful of analysts initiated coverage on the company, noting buy and outperform recommendations. Shares gained more than 10.5 percent by midday.

Investors on Stocktwits expect the stock to push even higher as the company emerges as a credible threat to Cisco, with its high performance switches that are responsible for directing network traffic. Investors also like that Arista is profitable. It posted revenue growth of 87 percent last year, at $361 million, and net income that almost doubled, totaling $43 million.

The company’s performance is all the more remarkable because of Cisco’s recent headwinds. According to market research firm Infonetics Research Inc., Cisco’s switch revenue declined 7 percent in the first quarter of this year, while Arista’s increased 90 percent.

Arista’s cloud networking applications are currently used by companies like Facebook and EBay, and the company is gaining market share by winning business with firms that need highly specialized equipment to run their sprawling data centers. The market for such services will be worth $12 billion, or double its current size, by 2017, according to analyst Brian Marshall of ISI Group.

Arista Networks has had a great run since its IPO raised $226 million in June. It began trading at $55 a share on the open, a rise of 28% from its pricing. It has not dipped below that level since. Still, some investors feel there is significant downside to the new offering if more firms initiate lower recommendations and price targets.

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