FFIV Market Research & Analysis Report
Updated May 19, 2015

Growth and Balance Sheet

The company reported record net income of $85.7 million, or $1.18 diluted earnings per share, for the second quarter of fiscal year 2015 ending March 31. That's up from net income of $$69.6 million, or 91 cents diluted earnings per share for the same quarter last fiscal year. Net revenues for the second quarter were $472 million, up from $420 million for the same quarter last fiscal year. Products revenue was up, in comparison to the same quarter last year, 8.4% to $244 million. Services revenue was up 17% to $228 million. Company’s gross margin increased around 50 basis points to 82.51% of sales from 81.99% in the second quarter of fiscal year 2014. The operation margin improved to 28.14% of sales from 26.39% in the second quarter of last fiscal year. Cash flow provided by operating activities for the quarter ending March 31, 2015 was $329 million, up from $241 million for the same period last fiscal year. Cash and cash equivalents as of March 31, 2015 were $368 million, in comparison to $282 million as of September 30, 2014. FFIV forecasted third quarter of fiscal year 2015 EPS are expected to be from $1.25 to $1.30, compared to actual EPS of $1.05 for the third quarter of last fiscal year. The financial strength indicators of the company are at satisfactory levels. Company’s current ratio is 1.51 and the industry average ratio is 2.64. The quick ratio of 1.47 is also lagging behind the industry average of 1.82. The company currently does not have any outstanding debt.  In terms of efficiency and effectiveness, the asset turnover ratio of 0.84 is at worse levels than the industry average of 1.04; the receivables turnover ratio of 7.57 is better than the industry average ratio of 4.51; and the ROE of 25.46% is better than the industry average of 21.8%. 

Valuation

FFIV PE stands at 27.05 above the industry average of 16.89, and above the stock market average represented by the S&P 500 average of 21.47. The company is currently trading above the maximum P/E ratio of 15x, and over the last five years, the company’s shares have traded in the range of 23.98x to 55.66x trailing 12-month earnings. FFIV's current Price/Sales of 4.98 is above the average of its industry of 3.8. FFIV’s head to head comparison to its main competitors shows that the company has one of the highest gross margin, and one that is well above the industry average. Moreover, the achieved operating margin of the company is the best result in comparison to the selected competitors, and well above the industry average. The quarterly revenue growth of the company is better result than what the competitors have achieved for the quarter. The company trades at an average P/E ratio in comparison to the selected peers. FFIV trades at the highest P/S ratio in comparison to the competitors’ P/S ratios. FFIV’s twelve trailing months EBITDA is $580.83 million, below what the peers have achieved in the twelve trailing months. The stock is currently trading below its intrinsic value of $146.73, this suggests that the stock is currently undervalued at these levels. The beta of 1.87 implies higher volatility of the stock with respect to the S&P 500. FFIV has shown very favorable earnings consistency over the last five years. Company’s earnings have increased by 29.04% over the same period. The current quarter earnings in comparison to the same quarter last year have increased by 29.67%. FFIV currently does not have any outstanding debt. FFIV’s current price levels are below the maximum level, 6.43% below the 52 week high of $136.11, and the technical analysis give neutral to positive view of the stock. The majority of analyst ratings are outperform and hold. FFIV currently does not pay any dividends.

About FFIV

F5 Networks, Inc. is the developer and provider of application delivery services. The Company's core technology is a full-proxy, programmable, software platform called TMOS (Traffic Management Operating System). It helps organizations seamlessly scale cloud, data center, and software-defined networking deployments to successfully deliver applications to anyone, anywhere, at any time. It works with many technology companies to improve manageability, strengthen security, and ensure faster and more successful deployments. Its applications include availability and delivery. It can remove the roadblocks in one’s network to efficiently and securely deliver applications that are available to users when and where they need them. It can also accelerate one’s application response time, minimize latency and delays, and reduce the number of data round trips necessary to complete a web request.

Competitor Comparison

F5 Networks, Inc. (NasdaqGS: FFIV) N.V.

Highlights

F5 Networks, Inc. develops, markets, and sells application delivery networking products that optimize the security, performance, and availability of network applications, servers, and storage systems. The stock closed yesterday’s trading session at $127.35. In the past year, the stock has hit a 52-week low of $102.60 and 52-week high of $126.11. The intrinsic value of the stock is above the current price. FFIV has a market cap of $9.12 billion and is part of the Technology sector.

• Integrated product suite ensuring market position
• Inorganic growth strategy
• Robust customer base

• Dependence on few distributors

FFIV Intrinsic Value

Stock Valuation Model & Intrinsic Value Definitions

Investors should keep an eye open for stocks that are trading within 10% of their 52-week highs, as it is likely to continue in its upward trend. FFIV's 52 week high is $136.11, current price is $127.35, is 6.43% below the 52 week high.

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 years, must be "moderate", which in this model states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. The company has a P/E ratio of 27.05, the average industry P/E ratio is 16.89 and is above the S&P 500 P/E ratio of 21.47.

When there is strong insider ownership which we define as 8% or more, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders.  Insiders own 0.44% of FFIV stock. Management's representation is not large enough. This does not satisfy our minimum requirement; companies that pass this test are more attractive to our valuation model.

The model is using several technical indicators (MACD, RSI, MFI, OBV, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value.

FFIV is trading in the range of $115.84 - $128.06 in the past 30 days. The stock has been showing support around the level of $110 and resistance in the $135 range. The stock is trading above the 50-Day Moving Average and above the 200-Day Moving Average. The RSI(14) is 62.99. As can be seen from the chart on page 1, the stock had a strong upward run from June to December – reaching the resistance levels from 2010 and 2012 – only to fail to break them once again. In 2015 the stock was mostly making red bars on the chart, but the resistance at around $110 held once again. Also observable is that the lows were shallower and the stock quickly picked up pace, and it seems that the resistance at around $135 will once again be tested. Our indicators give neutral to positive view of FFIV.

The financial health of the company the higher the better, we evaluate all the financial ratios of the company.

Investor’s sentiment for the stock.

The model assigns a value according to analyst’s recommendation for the stock. Analyst rating on Reuters.com are 11 Buy, 12 Outperform, and 12 Hold.

We are searching for EPS numbers that are better than the previous year's. One dip is allowed, but the following year's earnings should be higher than the previous year. FFIV’s annual EPS for the last 5 years were 1.86, 2.96, 3.45, 3.50, and 4.09 this type of earnings action is very favorable.

The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry. FFIV currently does not have any outstanding debt.

The EPS growth for this quarter relative to the same quarter a year earlier is above the minimum 15% that this model likes to see for a "good" growth company. Stocks with improving earnings are worthy of your extra attention. FFIV’s adjusted EPS growth for this quarter relative to the same quarter a year earlier is 29.67%, above our target.

This stock valuation model looks for annual earnings growth above 12%, but prefers higher than 20%. FFIV’s annual earnings growth rate over the past five years is 29.04%, above our target.

¹Tradespoon Score and Outlook: This score conveys Tradespoon’s long-term outlook of 1 to 5 years for a particular stock. Tradespoon uses proprietary methods to rate its trading picks on a scale from 1 to 10, with a 10 being the most favorable expected risk and return outlook. To determine a stock’s rating, Tradespoon uses an advanced algorithm that factors in fundamental and technical analysis to determine a stock's expected risk and return.