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Arista Networks (ANET) Up 8.4% Since Last Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for Arista Networks (ANET - Free Report) . Shares have added about 8.4% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Arista Networks due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Arista Beats Q3 Earnings Estimates on Solid Revenues
Arista reported healthy third-quarter 2023 results, with solid revenues driven by robust demand trends. Easing supply chain woes and steady customer additions backed by the company’s best-in-class portfolio strength ensured a top-line expansion year over year. Both the bottom and the top line beat the respective Zacks Consensus Estimate.
Net Income
GAAP net income in the reported quarter improved to $545.3 million or $1.72 per share from $354 million or $1.13 per share in the year-ago quarter. The improvement was mainly propelled by higher net sales.
On a non-GAAP basis, net income was $581.4 million or $1.83 per share compared with $391.9 million or $1.25 per share in the year-earlier quarter. The bottom line beat the Zacks Consensus Estimates by 25 cents.
Revenues
During the quarter, revenues surged to $1,509.5 million from $1,176.8 million in the prior-year quarter, owing to an improvement in component supply that enhanced the manufacturing output consistency and healthy contributions from enterprise customers in EMEA and APAC regions. The company introduced various solutions for cloud, Internet service providers and enterprise networks to meet the rising demands of AI/ML-driven network architectures. These innovations enabled Arista to deliver a superior customer experience and increase customer engagement. The top line beat the consensus estimate of $1,479 million.
Net sales from Product totaled $1,285.5 million compared with $1,008.7 million in the year-ago quarter. It exceeded our estimate of $1,250.3 million. Service revenues increased to $223.9 million from $168.1 million but missed our estimates of $227.2 million. Arista witnessed positive demand trends owing to its strong product portfolio that is highly scalable, programmable and provides data-driven automation, analytics and world-class support services.
Net sales from the Americas contributed 78.5% to total revenues, while international revenues accounted for the remainder. Healthy contributions from enterprise customers in EMEA and APAC regions supported the top-line growth in the international market. Driven by its innovation, Arista maintains a strong leadership position in the Data Center and Cloud Networking vertical.
Other Details
Non-GAAP gross profit rose to $951.8 million from $719.8 million, with non-GAAP gross margin of 63.1% and 61.2%, respectively. The margin was above the company’s guidance.
Total operating expenses were $339.7 million, up from $292.6 million in the year-ago quarter. Research & development costs rose to $212.4 million from $187.8 million. Sales and marketing expenses also increased to $102 million from $81.4 million due to a rise in headcount, new product introduction costs and higher variable compensation expenditures.
Cash Flow & Liquidity
In the first nine months of 2023, Arista generated $1,507.6 million of net cash from operating activities compared with $452.3 million in the prior-year period. As of Sep 30, 2023, the company had $1,748.8 million in cash and cash equivalents and $68 million in other long-term liabilities.
Outlook
For the fourth quarter of 2023, management expects revenues in the range of $1.5-$1.55 billion. Non-GAAP gross margin is estimated at 63% and non-GAAP operating margin is approximated at 42%.
The company expects further easing of supply chain anomalies and an improvement in lead time before normalizing in 2024. However, it anticipates a moderation in consumer spending, mainly for cloud titan customers. It expects a steady improvement in gross margin owing to the optimization of manufacturing output.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
The consensus estimate has shifted 8.76% due to these changes.
VGM Scores
At this time, Arista Networks has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Arista Networks has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Arista Networks is part of the Zacks Communication - Components industry. Over the past month, Corning (GLW - Free Report) , a stock from the same industry, has gained 3.7%. The company reported its results for the quarter ended September 2023 more than a month ago.
Corning reported revenues of $3.46 billion in the last reported quarter, representing a year-over-year change of -5.7%. EPS of $0.45 for the same period compares with $0.51 a year ago.
For the current quarter, Corning is expected to post earnings of $0.41 per share, indicating a change of -12.8% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.2% over the last 30 days.
Corning has a Zacks Rank #4 (Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
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Arista Networks (ANET) Up 8.4% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Arista Networks (ANET - Free Report) . Shares have added about 8.4% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Arista Networks due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Arista Beats Q3 Earnings Estimates on Solid Revenues
Arista reported healthy third-quarter 2023 results, with solid revenues driven by robust demand trends. Easing supply chain woes and steady customer additions backed by the company’s best-in-class portfolio strength ensured a top-line expansion year over year. Both the bottom and the top line beat the respective Zacks Consensus Estimate.
Net Income
GAAP net income in the reported quarter improved to $545.3 million or $1.72 per share from $354 million or $1.13 per share in the year-ago quarter. The improvement was mainly propelled by higher net sales.
On a non-GAAP basis, net income was $581.4 million or $1.83 per share compared with $391.9 million or $1.25 per share in the year-earlier quarter. The bottom line beat the Zacks Consensus Estimates by 25 cents.
Revenues
During the quarter, revenues surged to $1,509.5 million from $1,176.8 million in the prior-year quarter, owing to an improvement in component supply that enhanced the manufacturing output consistency and healthy contributions from enterprise customers in EMEA and APAC regions. The company introduced various solutions for cloud, Internet service providers and enterprise networks to meet the rising demands of AI/ML-driven network architectures. These innovations enabled Arista to deliver a superior customer experience and increase customer engagement. The top line beat the consensus estimate of $1,479 million.
Net sales from Product totaled $1,285.5 million compared with $1,008.7 million in the year-ago quarter. It exceeded our estimate of $1,250.3 million. Service revenues increased to $223.9 million from $168.1 million but missed our estimates of $227.2 million. Arista witnessed positive demand trends owing to its strong product portfolio that is highly scalable, programmable and provides data-driven automation, analytics and world-class support services.
Net sales from the Americas contributed 78.5% to total revenues, while international revenues accounted for the remainder. Healthy contributions from enterprise customers in EMEA and APAC regions supported the top-line growth in the international market. Driven by its innovation, Arista maintains a strong leadership position in the Data Center and Cloud Networking vertical.
Other Details
Non-GAAP gross profit rose to $951.8 million from $719.8 million, with non-GAAP gross margin of 63.1% and 61.2%, respectively. The margin was above the company’s guidance.
Total operating expenses were $339.7 million, up from $292.6 million in the year-ago quarter. Research & development costs rose to $212.4 million from $187.8 million. Sales and marketing expenses also increased to $102 million from $81.4 million due to a rise in headcount, new product introduction costs and higher variable compensation expenditures.
Cash Flow & Liquidity
In the first nine months of 2023, Arista generated $1,507.6 million of net cash from operating activities compared with $452.3 million in the prior-year period. As of Sep 30, 2023, the company had $1,748.8 million in cash and cash equivalents and $68 million in other long-term liabilities.
Outlook
For the fourth quarter of 2023, management expects revenues in the range of $1.5-$1.55 billion. Non-GAAP gross margin is estimated at 63% and non-GAAP operating margin is approximated at 42%.
The company expects further easing of supply chain anomalies and an improvement in lead time before normalizing in 2024. However, it anticipates a moderation in consumer spending, mainly for cloud titan customers. It expects a steady improvement in gross margin owing to the optimization of manufacturing output.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
The consensus estimate has shifted 8.76% due to these changes.
VGM Scores
At this time, Arista Networks has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Arista Networks has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Arista Networks is part of the Zacks Communication - Components industry. Over the past month, Corning (GLW - Free Report) , a stock from the same industry, has gained 3.7%. The company reported its results for the quarter ended September 2023 more than a month ago.
Corning reported revenues of $3.46 billion in the last reported quarter, representing a year-over-year change of -5.7%. EPS of $0.45 for the same period compares with $0.51 a year ago.
For the current quarter, Corning is expected to post earnings of $0.41 per share, indicating a change of -12.8% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.2% over the last 30 days.
Corning has a Zacks Rank #4 (Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.