Yahoo Finance Arista Networks (ANET) Up 2% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Arista Networks (ANET). Shares have added about 2% 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 the most recent earnings report in order to get a better handle on the important catalysts.
Arista Beats Q1 Earnings Estimates on Solid Revenues
Arista reported healthy first-quarter results with solid top and bottom-line growth year over year, driven by robust demand trends. Easing supply chain woes and steady customer additions backed by the company’s best-in-class portfolio strength ensured top-line expansion, while steady margin improvement contributed to earnings growth. Both the bottom and the top lines beat the respective Zacks Consensus Estimate.
Net Income
GAAP net income in the reported quarter improved to $637.7 million or $1.99 per share from $436.5 million or $1.38 per share in the year-ago quarter. The increase was mainly propelled by higher net sales.
On a non-GAAP basis, net income was $637.7 million or $1.99 per share compared with $452.5 million or $1.43 per share in the year-earlier quarter. The bottom line beat the Zacks Consensus Estimates by 25 cents.
Revenues
Revenues surged to $1.57 billion from $1.35 billion in the prior-year quarter, driven by the strength in the enterprise vertical. 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 $1.54 billion.
Net quarterly sales from Product totaled $1.33 billion compared with $1.17 billion in the year-ago quarter. Service revenues increased to $242.5 million from $179.3 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 80% to total revenues, while international revenues accounted for the remainder. 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 $1.01 billion from $814.3 million, with non-GAAP gross margin of 64.2% and 60.3%, respectively. The margin was above the company’s guidance.
Total operating expenses were $341.2 million, up from $319.9 million in the year-ago quarter. Research & development costs rose to $208.4 million from $201.4 million. Sales and marketing expenses also increased to $105.1 million from $93.5 million due to a rise in headcount, new product introduction costs and higher variable compensation expenditures.
Cash Flow & Liquidity
In the first quarter of 2024, Arista generated $513.8 million of net cash from operating activities compared with $374.5 million in the year-ago period. As of Mar 31, 2024, the company had $2.09 billion in cash and cash equivalents and $132.3 million in other long-term liabilities.
During the quarter, the company repurchased $62.7 million worth of shares and an additional $82 million subsequently in April for a total consideration of $144.7 million at an average price of $269.80 per share. With this, Arista completed its existing $1 billion share repurchase program, repurchasing 8.5 million shares at an average price of $117.20 per share. Management authorized a new $1.2 billion stock repurchase program, which commenced in May 2024 and expires in May 2027.
Outlook
For the second quarter of 2024, management expects revenues in the range of $1.62-$1.65 billion. Non-GAAP gross margin is estimated at 64% and non-GAAP operating margin is approximated at 44%.
The company expects further easing of supply chain anomalies and an improvement in lead time 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?
It turns out, fresh estimates have trended upward during the past month.
VGM Scores
Currently, Arista Networks has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. 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 #1 (Strong 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, Altice USA, Inc. (ATUS), a stock from the same industry, has gained 26.5%. The company reported its results for the quarter ended March 2024 more than a month ago.
Altice USA reported revenues of $2.25 billion in the last reported quarter, representing a year-over-year change of -1.9%. EPS of -$0.05 for the same period compares with $0.06 a year ago.
Altice USA is expected to post earnings of $0.08 per share for the current quarter, representing a year-over-year change of -52.9%. Over the last 30 days, the Zacks Consensus Estimate has changed +2.7%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Altice USA. Also, the stock has a VGM Score of B.
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Arista Networks, Inc. (ANET) : Free Stock Analysis Report
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