F5 Networks Downgraded By PacCrest Amid Cloud Pressures

Shares of F5 Networks, Inc. (NASDAQ: FFIV) were down more than 2 percent after Pacific Crest downgraded the stock to Sector Weight from Overweight amid cloud pressures.

Apart from valuation, the brokerage said the "mix shift to subscription offerings" may partially offset a product recovery in the second half of the year, and cloud pressures "continue to curb new on-premise IT upgrades."

"Going forward, we see an increasing probability that M&A will have a greater role in defining the "third act," particularly given that F5 has excess cash reserves of $1 billion and robust operating cash flows that exceed $600 million annually," analyst Brent Bracelin wrote.

Recommending investors to revisit the stock in early 2017, the analyst noted that the Shasta appliance refresh cycle is not expected to drive a return to double-digit product growth, at least not this year.

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Although the company's potential efforts to address the cloud deliver and security (CDS) segment of the market could help its revenue grow above $2 billion, Bracelin says "it may take time and new leadership to fully execute."

Bracelin noted that the risk-reward looks balanced given the stock has gained 25 percent from the February lows and now sits 11 percent higher for the year. "Investor optimism for a product cycle driven recovery has started to creep into the share price," he said.

For the full year, the analyst sees earnings of $7.13 a share on revenue of $1. 979 billion, while consensus estimate calls for EPS of $7.11 on revenue of $1.988 billion.

At time of writing, F5 Networks was down 3.16 percent at $103.94.