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F5 Networks, Inc. (FFIV) jumped 4.62% in Monday’s extended-hours session after the multi-cloud applications delivery company disclosed quarterly results that came in ahead of Wall Street expectations.

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The $7.68 billion technology giant reported adjusted earnings of $2.43 per share for the September quarter, comfortably beating analysts’ expectations of $2.38 a share. However, the bottom line contracted 6% from the year-ago period. Sales of $615 million came in ahead of the $607 million consensus mark and rose 4.1% on a year-over-year (YoY) basis.

Looking ahead, the company expects to generate revenues of $595 million to $615 million in the current quarter, above forecasts of $592 million. It sees earnings per share (EPS) in a range between $2.26 to $2.38, above the average $2.28 estimate.

As of Oct. 27, 2020, F5 Networks has slumped 10% on the year and 17.57% over the past three months. At current prices, the stock looks attractive from a valuation standpoint. It trades just under 13 times projected earnings, below its five-year average multimer of around 15 times.

Strategic Shift Continues

Over the past few years, management has shifted its focus from hardware to software solutions. It also continues to pivot from perpetual licenses to subscription-based pricing. F5 CEO Locoh-Donou expects the firm’s software segment to grow by at least 35% in the September 2021 fiscal year.

“Going forward, we expect continued robust software growth from a more diversified base of subscription and SaaS revenue, a software subscription renewals flywheel that is starting to turn with momentum, and true-forward revenue opportunities on a significant percentage of our long-term software subscription contracts,” Locoh-Donou said in a statement accompanying the earnings call, per the F5 website.


Wall Street View

Last week, MKM Partners’ Fahad Najam upgraded F5 Networks to ‘Buy’ from ‘Neutral’ and bumped his price target to $170, up from $140. The analyst’s upward price revision implies a nearly 30% premium to Monday’s after-hours quote of $131.37.

Other research firms also remain mostly bullish about the stock. It receives 9 ‘Buy’ ratings, 1 ‘Overweight’ rating, 9 ‘Hold’ ratings, and 1 ‘Underweight’ rating. Price targets elsewhere on the Street range from as high as $190 to as low as $122, with the median pegged at $165.50. Look for further upward revisions over the coming days after the company’s better than expected earnings.

Technical Outlook and Trading Tactics

F5 Network shares have formed a broad inverse head and shoulders pattern over the past 14 months, indicating a market bottom is in place. The stock looks like opening at $131.37 on Tuesday, positioning the price back above the 200-day simple moving average (SMA). Active traders who buy around this level should anticipate a possible runup to the pattern’s neckline at $153.50. Protect capital by placing a stop-loss order underneath yesterday’s low at $122.25.

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