Activist investor Elliott Management has built up a stake in F5 Networks and spoken to the software provider’s management in recent weeks to find ways to boost its lagging stock, the Wall Street Journal has learnt. Shares are rising 3.6% in Monday’s pre-market trading session.
Although the exact size of Elliott’s position wasn’t disclosed, it is likely to be below the 5% threshold that would require regulatory disclosure, the Wall Street Journal reported. Elliott is one of the largest investors in F5 Networks (FFIV), a Seattle-based company with a market value of about $8.8 billion.
According to the report, Elliott managers challenged the company’s recent acquisitions of Shape Security Inc. and Nginx Software Inc., suggesting it may have overpaid without a clear integration strategy, according to the report.
Shares of F5 Networks, which have recovered most of their losses suffered in recent months and are now trading 3.5% higher than at the start of the year, are still underperforming the 33% gain in the Nasdaq stock index. (See FFIV stock analysis on TipRanks).
At the end of last month, F5 Networks said it expects fiscal 1Q revenues of between $595 million and $615 million, surpassing Street estimates of $592.8 million. The mid-point of the adjusted EPS guidance range of $2.26-$2.38 is also projected above analysts’ forecasts of $2.28. For the fourth quarter, the software company reported adjusted EPS of $2.43 that exceeded analysts’ expectations of $2.37 as well as its own guidance range of $2.30-$2.42.
Following the earnings report, Needham analyst Alex Henderson assigned a Buy rating on the stock with a $180 price target (25% upside potential) based on the analyst’s outlook that revenue is accelerating as the mix shifts toward rapidly growing software sales from declining appliances.
“F5’s recent acquisitions of NGNIX and Shape dramatically improve its competitive position and materially shift the company to a software-driven subscription model,” Henderson wrote in a note to investors. “Software-driven revenue growth of 6%-10% over the next 3 years will attract investors to this low-priced equity.”
The analyst expects software will cross to over 50% of product sales in CY21.
The rest of the Street is cautiously optimistic on the stock. The Moderate Buy analyst consensus splits into 5 Buys, 3 Holds, and 1 Sell. Meanwhile, the average price target of $158.83 implies upside potential of about 10% to current levels.
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