F5 Networks' stock has wildly outperformed Cisco's stock

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F5 Networks' stock has wildly outperformed Cisco's stock
Tue, 04/06/10 - 11:41pm Add your comment

According to Investor's Business Daily, application delivery networking vendor - F5 Networks (FFIV), has a 38.4% share of the application delivery controller market, while Cisco has 23.8% and Citrix has 12.1%.

On April 21, F5 Networks will release its 2Q10 financial results, however in the meantime, RBC Capital Markets Managing Director - Mark Sue, provides his take on what to expect:

"Application acceleration networking market growth accentuated by a product cycle and revenue recognition of a large financial services consolidation project points to strong near-term results from FFIV. Ahead of the company's earnings release, we're increasing our revenue estimate from $200M to $206M or +7% QoQ vs. the consensus of $199M. With the stock trading at 24x the consensus CY11E EPS, most investors may have already factored in meaningful upside for the near term. Our new price target of $60 represents 21x our unlevered CY11E EPS with cash added back of $8.00/share.

"Data center consolidation projects are resuming, benefiting companies such as F5, Cisco, Radware and A10 Networks. In addition, the pipeline for application acceleration gear is increasing, driven by strength in the US. Checks also point to a strong finish with carrier customers in Japan (6%). While most of the larger deals are led by telcos and service providers, we've also observed a healthy return to spend by enterprise customers. F5 may have closed the quarter with a positive book-to-bill greater than 1.0 and may guide for sequential revenues in a range of $210M to $215M vs. the printed consensus of $206M."

F5 Networks (FFIV) vs. Cisco (CSCO) Stock Chart

Source: Yahoo! Finance

Sue continued, "Sequential product growth is primarily driven by the core Application Delivery products such as the high-end Viprion, the 8900 Series and even mid-range products such as the 3900 and 3600. Database applications seem to be growing again for F5 as well, with notable growth tied into Oracle and SAP implementations."

Sue added, "F5, similar to most companies in tech, is hiring again due to the return in demand. While F5 may come in at the low end of the 50-80 new employees in the March Q, we look for steady additions in sales and marketing and engineering throughout the year. Our overall operating margin estimate is a healthy 32% and we don't expect any meaningful changes to last quarter's 80.4% gross margins either."

Sue concluded, "Positive trends with carriers and larger enterprises, larger deal sizes, and longer-term projects point to some sustainability in F5's strength. We're maintaining our valuation discipline as we believe most investors have factored in healthy sequential trends in the near term."

Why do you think F5 Networks' stock has so wildly outperformed Cisco's stock?