: Arista stock on track for best trading day on record amid cheers for buyback program, growth opportunities
Shares of Arista Networks Inc. are surging toward their best trading day on record after the networking company exceeded expectations with its latest results while announcing plans for a large stock buyback and a stock split.
is up 24.8% in Tuesday trading and on track for its largest single-day percentage gain on record. The current record is a 21.8% rally on July 1, 2014.
In addition to reporting earnings late Monday, Arista held an analyst day that fueled optimism about the company’s long-term revenue opportunity.
“Arista’s combination of 3Q21 earnings print and the analyst day delivered multiple positive surprises for investors and is likely to drive sizable upward revisions to consensus earnings, not only for 2021 or 2022 but also for normalized earnings through the cycle,” J.P. Morgan’s Samik Chatterjee wrote in a note to clients.
Chatterjee highlighted strong demand from cloud customers and a ramp in the 200G/400G upgrade cycle, both of which are helping drive expectations for roughly 30% revenue growth in 2022, up from estimated growth of about 25% this year.
“The confidence exhibited through the revenue guidance speaks to the strong backlog of orders that the company already has and the supply assurance through its purchase commitments, positioning Arista well both in relation to demand as well as supply,” Chatterjee wrote.
While Arista’s forecast of a 15% compound annual growth rate from 2020 to 2025 came in lower than he anticipated, Chatterjee said that Arista’s management team may have taken a conservative approach to that projection.
“[W]e believe investors will acknowledge the conservatism the management team is likely embedding into the updated long-term guidance after facing challenges to delivering on the previous targets issued at the 2019 analyst day,” he wrote, while maintaining an overweight rating and boosting his price target to $500 from $455.
Jefferies analyst George Notter also suspected some conservatism in the forecasting and pointed specifically to the 30% revenue-growth target for 2022. There are opportunities for Arista to grow revenue through higher pricing, increased campus sales, and the realization of pent-up deferred revenue, he said, while there’s also room for meaningful growth in the core business.
“Beyond this, it’s clear that Facebook will be substantially larger next year,” he added.
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Notter also highlighted Arista’s “best-ever visibility” into its business. While Arista’s management called out lead times of four months for current orders, the executives also noted that cloud customers “are giving the company over a year in visibility right now (up from the typical 1-2 quarters),” Notter wrote.
He has a hold rating on Arista’s stock and acknowledged that he “missed this one.” Notter recommended Ciena Corp.’s
stock “as a much cheaper way of playing many of the same data-center trends as Arista.” (Ciena shares are up almost 9% in Tuesday’s session.)
Evercore ISI analyst Amit Daryanani keyed in on Arista’s discussion of its sizable cash balance and the flexibility that it provides in terms of making purchase commitments.
Arista “is investing heavily in the business including the $2.1 billion purchase commitments that will give Arista a powerful weapon to see share gains accelerate.” The gains could happen “not just against the traditional networking vendors,” he continued, but also against white-box vendors like hyperscalers.
Daryanani rates the stock at outperform and increased his price target to $480 from $420.