We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Earnings Season Top Performer: A Must Own Cloud Solutions Stock
Read MoreHide Full Article
Arista Networks (ANET - Free Report) reported earnings on Monday, October 30, and blew out earnings expectations, sending the stock to new all-time highs.
Arista Networks is a leading American technology company specializing in the development and manufacturing of high-performance networking solutions for data centers and cloud computing environments.
ANET stock has been one of the better performing stocks this year, rallying 80% by September. However, along with the broader market, had begun to experience some aggressive selling over the last month as tensions abroad mounted and interest rates made 17-year highs.
But a banner quarter put an end to the selling as investors realized what they were giving up. Now they are back in the market and have rushed in to buy back shares, sending the stock 25% higher over the last three days.
Image Source: TradingView
What is Drawing Back Investors?
Arista Networks Q3 sales of $1.51 billion beat analysts’ estimates by 2% and showed a 28.3% YoY increase, while earnings of $1.83 per share topped estimates by 16.1%.
The upside surprise in profits was driven by an expansion in gross margins from 60.6% in Q2 to 62.4% in the current quarter and management raised Q4 sales guidance to $1.5 - $1.55 billion, which was above expectations.
ANET enjoys a Zacks Rank #1 (Strong Buy) rating, reflecting upward trending earnings revisions, and increasing the odds of a further rally in the near-term.
Big Tech Customers
Arista Networks’ two biggest customers are Microsoft (MSFT - Free Report) and Meta Platforms (META - Free Report) , and this quarter announced a new deal with Oracle (ORCL - Free Report) who will add as much as 5% to total sales. Some analysts also expect ANET to win additional contracts from tech giant Alphabet (GOOGL - Free Report) in the near future, nicely rounding out its list of clients.
Thanks to the continued explosion in Cloud Computing, especially the segment used in Artificial Intelligence development Arista Networks is likely to experience growth tailwinds in the foreseeable future.
Although Alphabet sold off hard following its earnings report last week, it noted that its cloud computing segment had grown sales 22% YoY. It should be noted that Alphabet posted an earnings beat, but sold off nonetheless.
Microsoft also beat estimates when it reported earnings last week, and as the number two cloud computing platform in the market, second only to Amazon (AMZN - Free Report) , showed strong growth. Cloud sales at Microsoft were up 19% YoY to $24.2 billion.
As the largest investor in the ChatGPT parent company OpenAI, Microsoft is leading the industry in AI enabled software.
Valuation
Today, Arista Networks is trading at a one year forward earnings multiple of 36.5x, which is above the industry average and above its five-year median of 33x.
And while that is a premium valuation, it should be noted that EPS are forecast to grow by an average 19% annually over the next 3-5 years, explaining why investors may be willing to pay up.
Image Source: Zacks Investment Research
Bottom Line
Arista Networks is sitting at the intersection of the market’s leading industries, with cloud computing and data centers on one side and Artificial Intelligence on the other. Because of these secular tailwinds ANET is likely to be a long-term winner and may be hard to ever scoop up at a significant discount.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Earnings Season Top Performer: A Must Own Cloud Solutions Stock
Arista Networks (ANET - Free Report) reported earnings on Monday, October 30, and blew out earnings expectations, sending the stock to new all-time highs.
Arista Networks is a leading American technology company specializing in the development and manufacturing of high-performance networking solutions for data centers and cloud computing environments.
ANET stock has been one of the better performing stocks this year, rallying 80% by September. However, along with the broader market, had begun to experience some aggressive selling over the last month as tensions abroad mounted and interest rates made 17-year highs.
But a banner quarter put an end to the selling as investors realized what they were giving up. Now they are back in the market and have rushed in to buy back shares, sending the stock 25% higher over the last three days.
Image Source: TradingView
What is Drawing Back Investors?
Arista Networks Q3 sales of $1.51 billion beat analysts’ estimates by 2% and showed a 28.3% YoY increase, while earnings of $1.83 per share topped estimates by 16.1%.
The upside surprise in profits was driven by an expansion in gross margins from 60.6% in Q2 to 62.4% in the current quarter and management raised Q4 sales guidance to $1.5 - $1.55 billion, which was above expectations.
ANET enjoys a Zacks Rank #1 (Strong Buy) rating, reflecting upward trending earnings revisions, and increasing the odds of a further rally in the near-term.
Big Tech Customers
Arista Networks’ two biggest customers are Microsoft (MSFT - Free Report) and Meta Platforms (META - Free Report) , and this quarter announced a new deal with Oracle (ORCL - Free Report) who will add as much as 5% to total sales. Some analysts also expect ANET to win additional contracts from tech giant Alphabet (GOOGL - Free Report) in the near future, nicely rounding out its list of clients.
Thanks to the continued explosion in Cloud Computing, especially the segment used in Artificial Intelligence development Arista Networks is likely to experience growth tailwinds in the foreseeable future.
Although Alphabet sold off hard following its earnings report last week, it noted that its cloud computing segment had grown sales 22% YoY. It should be noted that Alphabet posted an earnings beat, but sold off nonetheless.
Microsoft also beat estimates when it reported earnings last week, and as the number two cloud computing platform in the market, second only to Amazon (AMZN - Free Report) , showed strong growth. Cloud sales at Microsoft were up 19% YoY to $24.2 billion.
As the largest investor in the ChatGPT parent company OpenAI, Microsoft is leading the industry in AI enabled software.
Valuation
Today, Arista Networks is trading at a one year forward earnings multiple of 36.5x, which is above the industry average and above its five-year median of 33x.
And while that is a premium valuation, it should be noted that EPS are forecast to grow by an average 19% annually over the next 3-5 years, explaining why investors may be willing to pay up.
Image Source: Zacks Investment Research
Bottom Line
Arista Networks is sitting at the intersection of the market’s leading industries, with cloud computing and data centers on one side and Artificial Intelligence on the other. Because of these secular tailwinds ANET is likely to be a long-term winner and may be hard to ever scoop up at a significant discount.