Application delivery and network security solutions provider F5 Networks (FFIV) is benefiting from strong software growth, which is supported by a solid portfolio of public cloud and security offerings. The FFIV stock has returned 40.45% in the past year, making it an attractive stock for retail investors.
Needham analyst Alex Henderson recently dove into the fundamentals and developments of the company, and seemed quite upbeat about its prospects. “We are making FFIV our Single Best Idea for CY22 in Networking,” said Henderson.
Compelling Offerings Strengthen Competitive Position
The analyst was encouraged by the growth trends in F5’s Software business, which is boosting the top-line. He expects revenues from Software to contribute more than 50% of Product revenues in the calendar year 2022 (CY22). This in turn is expected to expand the annual operating margin by 200 basis points.
In the security domain, Henderson anticipates growth in demand for F5’s Security products as the world prepares to combat the new LOG4J Internet vulnerability and various other advanced hacking attacks. This is because, as Henderson pointed out, F5 offers “one of the most robust WAF (web application firewall) and API gateway products.”
F5’s acquired open-source application delivery platform, NGINX, is expected to further help the company improve its competitive position in the software domain. Kubernetes, an open-source framework for the automation of software deployment, scaling, and management, is an emerging sub-market that is gaining fast traction in the software development world, and F5 is working its way to the top in this area.
“NGINX has a strong 65% plus market share in Kubernetes deployed application workloads,” noted Henderson. Upon integration with F5’s BIG-IP Data Center product line, that will allow the company’s top executives to set an Enterprise-wide security fence for coders without affecting the agility of software processes.
“We expect strong software growth and declining Data Center Appliance sales to result in a mix shift to higher growth Software over time resulting in accelerating Revenue growth,” Henderson summed up.
The analyst reiterated a Buy rating on the stock and increased the price target to $303 from $265.
Wall Street’s Take
Wall Street consensus, however, is cautiously optimistic about F5, with a Moderate Buy rating based on 5 Buys, 2 Holds, and 1 Sell. The F5 stock predictions show an average price target of $246.38, indicating a downside of 0.13% from current levels.
Disclosure: At the time of publication, Chandrima Sanyal did not have a position in any of the securities mentioned in this article.
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