What Happened:
Shares of network application delivery and security specialist F5 (NASDAQ:FFIV) jumped 7.25% in the afternoon session after the company reported third-quarter results that narrowly beat analysts' revenue expectations. On a brighter note, earnings per share beat by an impressive 12%. Free cash flow also improved significantly compared to the previous quarter. Management added some bullish comments, stating that demand is stabilizing and that F5 Networks should be able to grow non-GAAP EPS by a double-digit percentage, which is higher than expectations. That really stood out as a positive in these results. On the other hand, its underwhelming revenue guidance for next quarter was disappointing (although next quarter's EPS guidance was in-line). Overall, this was a mixed quarter for F5 Networks, but the double-digit percentage non-GAAP EPS growth for the full year is being received well. After the initial pop the shares cooled down to $159, up 0.02% from previous close.
What is the market telling us:
F5 Networks's shares are not very volatile than the market average and over the last year have had only 4 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. The previous big move was three months ago, when the stock dropped 6.85% on the news that the company reported underwhelming earnings, which narrowly beat analysts' revenue estimates. However, revenue guidance for the next quarter was below consensus estimates. Following the results, Barclays analyst downgraded the stock's rating from Overweight (Buy) to Equal-Weight (Hold).
F5 Networks is up 9.77% since the beginning of the year, and at $159 per share it is trading close to its 52-week high of $173.70 from August 2022. Investors who bought $1,000 worth of F5 Networks' shares 5 years ago would now be looking at an investment worth $907.53.
Is now the time to buy F5 Networks? Access our full analysis of the earnings results here, it's free.
Stock markets kept up their positive momentum on Monday, with all three major market benchmarks extending their gains from the past few weeks. The Dow Jones Industrial Average (^DJI 0.54%) led the way higher, but gains for the Nasdaq Composite (^IXIC 1.59%) and S&P 500 (^GSPC 1.10%) kept most investors happy.
|
Index |
Percentage Change |
Point Change |
|---|---|---|
|
Dow Jones Industrials |
+0.52% |
+184 |
|
S&P 500 |
+0.40% |
+18 |
|
Nasdaq Composite |
+0.19% |
+26 |
Data source: Yahoo! Finance.
This week is a big one for earnings, and a couple of stocks made major moves late Monday after releasing their latest financial results. F5 Networks (FFIV 1.40%) managed to post a good-size move higher after hours on Monday evening, but Cadence Design Systems (CDNS 3.58%) moved in the other direction. Here's the latest on both stocks and what investors are thinking about them right now.
F5 makes the connection
F5 saw its stock jump 10% in after-hours trading on Monday. The tech company reported fiscal third-quarter financial results for the period ended June 30 that featured solid growth in key areas.
The numbers showed modest but steady growth. Revenue inched higher by 4% year over year to $703 million, with global services revenue leading the way with a gain of 8%. Product revenue was mixed, with systems-related sales climbing but software revenue giving back a good portion of those gains. Adjusted net income climbed more than 25% to $194 million, with adjusted earnings working out to $3.21 per share.
Investors also seemed pleased with F5's guidance for the coming quarter. Fiscal fourth-quarter revenue should be between $690 million and $710 million, which would be consistent with the just-ended period's sales. Similarly, adjusted earnings of $3.15 to $3.27 per share wouldn't represent much if any sequential growth, but it would show that F5 can hold its own even in a tough macroeconomic environment.
Multi-cloud application services and security have become an important niche, and F5 is doing a good job of filling it. Yet the stock hasn't done much to recover its lost ground since late 2021, and that leaves open an opportunity for the company to keep taking steps to reignite its growth.
Cadence can't keep up the pace
Elsewhere, shares of Cadence Design Systems were down more than 4% after hours on Monday. The AI stock produced sizable growth in the second quarter of 2023, but investors seemed to have even higher expectations that Cadence couldn't quite meet.
Second-quarter financial results were solid. Revenue climbed 14% year over year to $977 million. Adjusted net income climbed to $334 million, up about 11% from year-ago levels and working out to $1.08 per share in adjusted earnings.
CEO Anirudh Devgan pointed to the rising impact of generative AI in driving Cadence's business, along with expertise in computation software and its trove of experience with data. The company also boosted its guidance for 2023, anticipating growth of more than 14% in sales for the full year compared to 2022, and earnings of between $5.05 and $5.11 per share on an adjusted basis.
Yet with Cadence's stock having risen more than 50% just in 2023 alone, shareholders wanted even better growth given the high potential of AI. That has set a bar that will be hard for Cadence to clear, but the good news is that investors will be paying close attention to how the company does for the rest of the year and beyond.
Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cadence Design Systems. The Motley Fool has a disclosure policy.
Needham analyst Alex Henderson reiterated a Buy rating on F5, Inc (NASDAQ:FFIV), raising the price target to $180 from $175.
The company recently reported 4% revenue growth in the third quarter, to $702.64 million beating the analyst consensus of $699.39 million.
While macro pressures have weakened demand and revenue growth in the near term, F5 is still expanding GM and Operating Margins, and the analyst believes that EPS is likely to grow at or near double-digits in the foreseeable future.
Despite the current macro conditions, F5 can deliver 10%+ EPS growth on expanding margins while returning capital to shareholders, the analyst adds.
F5 has now worked off its Systems backlog and reiterated that by shipping to the Backlog, the analyst notes that Systems have a 6%-8% headwind in FY24.
The company has a strong Balance Sheet with $11.55/share in cash, nearly $1 billion in authorized share repurchases, and superb cash flow generation, Henderson adds.
Longer-term, the company is a strong play on Kubernetes, modern application workloads, and Security, notes the analyst.
When the macro improves and overdue replacement cycles occur, Henderson expects the revenue to re-accelerate.
Based on the above, the analyst increased EPS Estimates for FY23 to $11.39 from $11.02 and for FY24 to $12.38 from $12.11.
Price Action: FFIV shares are trading higher by 6.4% to $159.85 on the last check Tuesday.
What Happened:
Shares of network application delivery and security specialist F5 (NASDAQ:FFIV) jumped 7.25% in the afternoon session after the company reported third-quarter results that narrowly beat analysts' revenue expectations. On a brighter note, earnings per share beat by an impressive 12%. Free cash flow also improved significantly compared to the previous quarter. Management added some bullish comments, stating that demand is stabilizing and that F5 Networks should be able to grow non-GAAP EPS by a double-digit percentage, which is higher than expectations. That really stood out as a positive in these results. On the other hand, its underwhelming revenue guidance for next quarter was disappointing (although next quarter's EPS guidance was in-line). Overall, this was a mixed quarter for F5 Networks, but the double-digit percentage non-GAAP EPS growth for the full year is being received well. After the initial pop the shares cooled down to $159, up 0.02% from previous close.
What is the market telling us:
F5 Networks's shares are not very volatile than the market average and over the last year have had only 4 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. The previous big move was three months ago, when the stock dropped 6.85% on the news that the company reported underwhelming earnings, which narrowly beat analysts' revenue estimates. However, revenue guidance for the next quarter was below consensus estimates. Following the results, Barclays analyst downgraded the stock's rating from Overweight (Buy) to Equal-Weight (Hold).
F5 Networks is up 9.77% since the beginning of the year, and at $159 per share it is trading close to its 52-week high of $173.70 from August 2022. Investors who bought $1,000 worth of F5 Networks' shares 5 years ago would now be looking at an investment worth $907.53.
Is now the time to buy F5 Networks? Access our full analysis of the earnings results here, it's free.
It doesn't matter your age or experience: taking full advantage of the stock market and investing with confidence are common goals for all investors.
While you may have an investing style you rely on, finding great stocks is made easier with the Zacks Style Scores. These are complementary indicators that rate stocks based on value, growth, and/or momentum characteristics.
Is This 1 Momentum Stock a Screaming Buy Right Now?
Momentum investors, who live by the saying "the trend is your friend," are most interested in taking advantage of upward or downward trends in a stock's price or earnings outlook. Utilizing one-week price change and the monthly percentage change in earnings estimates, among other factors, the Momentum Style Score can help determine favorable times to buy high-momentum stocks.
F5 Networks (FFIV)
Seattle, WA-based F5 Networks Inc, founded in 1996, provides products and services to manage Internet traffic worldwide. Its application, delivery and networking products Excellerate performance, availability and security of applications running on networks that use the Internet Protocol (IP).
FFIV sits at a Zacks Rank #3 (Hold), holds a Momentum Style Score of B, and has a VGM Score of B. The stock is down 1.6% and up 4.1% over the past one-week and four-week period, respectively, and F5 Networks has lost 10.7% in the last one-year period as well. Additionally, an average of 676,064.38 shares were traded over the last 20 trading sessions.
Momentum investors also pay close attention to a company's earnings. For FFIV, nine analysts revised their earnings estimate upwards in the last 60 days, and the Zacks Consensus Estimate has increased $0.35 to $11.42 per share for 2023. FFIV boasts an average earnings surprise of 6.4%.
With strong earnings growth, a good Zacks Rank, and top-tier Momentum and VGM Style Scores, investors should think about adding FFIV to their portfolios.
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F5, Inc. (FFIV) : Free Stock Analysis Report
