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Factors Likely to Decide F5 Networks' Fate in Q4 Earnings

Zacks Equity Research
Updated

F5 Networks Inc. FFIV is scheduled to report fourth-quarter 2017 results on Oct 25.

The company is likely to report lower revenues in the quarter due to a volatile spending atmosphere and competitive threats. This in turn, is likely to result in lower earnings for the quarter.

Last quarter, the company's adjusted earnings of $1.55 per share missed the Zacks Consensus Estimate of $1.59 per share. Moreover, F5 Networks’ revenues of $517.8 missed the Zacks Consensus Estimate of $525 million.

Challenges for the Company

Cisco Systems CSCO poses the most significant competitive threat to F5 Networks, given the dominance of the former in the overall networking market. Cisco has tremendous engineering and marketing resources at its disposal. Although F5 Networks’ technology leads in the networking market, Cisco could become more competitive if it invests aggressively. Additionally, Citrix Inc., Juniper Networks, Checkpoint Systems, and Barracuda Networks also have strong technology platforms that could pose significant competitive threat on improved execution.

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Notably, F5 Networks continues to acquire a large number of companies. While this improves revenue opportunities, business mix and profitability, it also adds to integration risks. Moreover, frequent acquisitions are a distraction for management, which could impact organic growth in the long run.

A substantial portion of the company’s sales is derived from outside the United States. Notably, the company garnered approximately 43.6%, 42.7% and 43.1% of total revenues in currencies other than the U.S. dollar during fiscal 2016, 2015 and 2014, respectively. This exposes the company to exchange rate fluctuations and counterparty default risk. Consequently, an economic condition, which impacts foreign currency exchange rates, does result in transaction exposure, which leads to profit fluctuation.

The Zacks Consensus Estimate for Product revenues is currently pegged at $248 million, significantly down from $253 million reported in the year-ago quarter.

F5 Networks, Inc. Price and EPS Surprise

F5 Networks, Inc. Price and EPS Surprise | F5 Networks, Inc. Quote

What the Zacks Model Unveils

Our proven model does not conclusively show that F5 Networksis likely to beat earnings this quarter as it does not possess the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -0.93% with the former currently pegged at $2.18 and the latter at $2.20. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: F5 Networkscarries a Zacks Rank #4 (Sell).

Note that we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks With Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

NVIDIA Corporation NVDA has an Earnings ESP of +1.06% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Applied Materials, Inc. AMAT has an Earnings ESP of +0.37% and a Zacks Rank #1.

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Cisco Systems, Inc. (CSCO) : Free Stock Analysis Report
 
F5 Networks, Inc. (FFIV) : Free Stock Analysis Report
 
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
 
Applied Materials, Inc. (AMAT) : Free Stock Analysis Report
 
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Zacks Investment Research