A 6% jump in Friday’s session was enough to make shares of F5 Networks (NASDAQ: FFIV
) among the best performing US equities on the day. At one point, shares were up more than 11% and at a new all time high, but ended up giving back about half that by the time the bell rang to start the weekend
Still, it was a great day which surely put a pep in their investors’ steps. Considering the stock had managed to close out 2020 at the top of a 120% rally, expectations are high for it to continue that kind of growth and pace in 2021.
Friday’s jump was largely driven by news of the Seattle based company’s $500 million acquisition of Volterra. In a note to investors, the company said the deal gives F5 the first universal edge-as-a-service platform, allowing for an edge platform built for enterprises and service providers that is "security-first and app-driven with unlimited scale." The deal is all but sealed with the boards of both companies already having signed off on it.
As part of the announcement, F5 upped their full year revenue forecast from a 6-7% CAGR to 7-8% and its longer term revenue growth targets to “double digits” from a previous guidance of 8-9%. As we saw with Friday’s jump in the stock price, Wall Street wasn’t slow about backing the company and continuing to feed the bid into their shares.
The positive news follows a pattern that investors were getting used to in the last quarter of 2020. Morgan Stanley had turned bullish on telecom and networking stocks in November as the potential for corporate offices to be reopening sooner than expected grew on the back of vaccine developments. Bank of America had had the stock at an Underperform rating, but on the back of "clear, positive signs of a successful transition" saw the near term risks starting to evaporate and so raised it to a cautious Neutral that same month. They’re expecting the F5’s total addressable market to more than double by 2023 which should have every investor getting excited.
Around the same time the folks over at JPMorgan also upgraded shares this time to a full Overweight rating. They struck a bullish tone on F5’s future growth prospects with a fresh $1 billion buyback program from management helping to underpin the current rally in the meantime. In a note to clients, analyst Samik Chatterjee said the company is in a "unique opportunity, offering double-digit growth in earnings at a reasonable price”, with consistent buybacks now giving them the "missing part of the puzzle".
Exciting Times Ahead
Investors getting involved with shares setting all time highs are buying into a growth story that has more than enough momentum to repeat 2020’s dazzling run. F5’s stock had traded sideways for much of the previous fortnight so with Friday’s pop the MACD is about to signal a bullish crossover.
Shares are bubbling right around their previous all time highs from 2018 and will need to push on quickly to avoid the risk of a double top forming. It’s not unreasonable to think that with these recent developments, some on Wall Street might be inclined to revisit their ratings and price targets, considering F5 shares have already hit most of the latter.
Any updates in this regard would help to set a new line in the sand around the $200 mark and allow shares to kick on from here. As we head into the rest of the year, there are more than enough fundamental and technical factors in play to justify continued fresh highs well in 2021
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