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TheStreet Open House

Why Extreme Networks (EXTR) Stock Is Jumping Today

NEW YORK (TheStreet) -- Extreme Networks (EXTR) was gaining 15.8% to $5.06 Monday after revising its fourth quarter guidance.

The company now expects earnings of 6 cents to 8 cents a share for the fourth quarter, up from its previous guidance of 2 cents to 4 cents a share. The Capital IQ Consensus Estimate calls for 3 cents a share. Extreme Networks now expects revenue of $154 million to $156 million, up from $145 million to $150 million for the quarter. Analysts expect revenue of $145.73 million for the quarter.

"I am pleased with the strong results that the team at Extreme delivered to close out our first year as a combined company," president and CEO Charles Berger said in a press release. " We saw better than expected results in North America, driven by several NFL stadium wins, as well as full year and quarter over quarter growth in the EMEA region. Our integration remains ahead of plan as we continue to execute against key Company operational and financial milestones, including successfully completing our ERP integration in early July, two months ahead of schedule."

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TheStreet Ratings team rates EXTREME NETWORKS INC as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:

"We rate EXTREME NETWORKS INC (EXTR) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, increase in stock price during the past year and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • EXTR's very impressive revenue growth greatly exceeded the industry average of 2.5%. Since the same quarter one year prior, revenues leaped by 110.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Looking ahead, our view is that this company's fundamentals will not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
  • EXTR's debt-to-equity ratio of 0.74 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.91 is weak.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Communications Equipment industry and the overall market, EXTREME NETWORKS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to -$25.75 million or 2297.39% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • You can view the full analysis from the report here: EXTR Ratings Report

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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