F5 Rallies on Strong Quarter, Buyback News

Shares of F5 Networks rallied on strong volume late Tuesday after the company beat Wall Street earnings expectations for its latest quarter and gave an above-consensus outlook.
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F5 Networks

(FFIV) - Get Report

rallied on heavy volume late Tuesday after the Seattle-based company beat Wall Street earnings expectations for its latest quarter and gave an above-consensus outlook.

F5 also said it plans to buy back up to $200 million worth of its common stock, returning cash to shareholders and sending a message to the market that it believes the stock remains attractive after a plus-90% run-up so far this year.

Earlier this month, the company

was hit with a pair of downgrades

on valuation, and while the shares did pull back from their 52-week high of $112.05 on Oct. 5 to briefly dip below $90 in the days leading up to the fiscal fourth-quarter report, the stock looked to be back in rally mode in extended trades.

Shares were last quoted at $108.34, up 5.7%, on volume of almost 1.6 million, according to


. The issue's trailing three-month daily average volume is around 2.1 million.

After the closing bell, F5 reported a non-GAAP

generally accepted accounting principles profit of $63.9 million, or 79 cents a share, on revenue of $254.3 million, for the three months ended Sept. 30, ahead of both its year-ago equivalent profit of $40 million, or 50 cents a share, on revenue of $175.1 million, and the average estimate of analysts polled by

Thomson Reuters

for earnings of 72 cents a share on revenue of $249 million.

For its current fiscal first quarter ending in December, F5 said it's targeting non-GAAP earnings of 80 to 82 cents a share on revenue of $265 million to $270 million. That view compares to current consensus estimates for a profit of 73 cents a share on revenue of $259.8 million.

""In general, Q4 was a strong finish to a strong year," said John McAdam, the company's president and CEO in a statement. "Barring another broad economic setback, the strength of our current business and our growing pipeline are encouraging signs that the positive trends that drove our business in fiscal 2010 will continue through fiscal 2011."

F5, whose application delivery networking products are used to manage a network's resources, said the smartphone revolution was a big demand driver during the quarter.


We have continued to see growing demand for our products among service providers grappling with the proliferation of mobile devices, the explosion of mobile applications and the corresponding increase in mobile data traffic," McAdam said in reference to the company's revenue increases of 12% on a sequential basis and 45% year-over-year.

Another standout element of the latest report was the strength in gross margins. F5 said its non-GAAP operating margin swelled to just under 38% in the latest quarter from 33.6% in the third quarter ended in June.

It will be interesting to see which way Wall Street leans following these numbers and the buyback news. Going into the report, 17 of the 34 analysts covering the stock were at hold with another two at underperform. At the levels being seen in extended trading, the stock is once again right around the analysts' median 12-month price target of $105.

Also, on a forward price-to-earnings basis, using consensus fiscal 2011 estimates, F5 shares were trading at a 33.2X multiple based on Tuesday's regular session close of $102.54. That compares to forward P-E multiples of 11.8X for competitors

Cisco Systems

(CSCO) - Get Report

, 21.2X for

Juniper Networks

(JNPR) - Get Report

, and 28.5X for

Citrix Systems

(CTXS) - Get Report



Written by Michael Baron in New York.

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Michael Baron


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