Why Citrix Systems Can Break Beyond Its 52-Week Highs

Citrix Systems (CTXS) is on an impressive run this year. The stock has gained more than 20% in 2015 and looks good for more. This is because Citrix is gaining impressive traction with its customers as its new products are seeing an increase in demand.

Recently, Gartner positioned Citrix in the leader's quadrant of the 2015 Magic Quadrant for Enterprise File Synchronization and Sharing (EFSS) report for the second consecutive year for its EFSS ShareFile product solution. The integration of ShareFile with other key products in the Citrix portfolio allows flexibility and security through Restricted Storage Zones, coupled with strong support for back-end consolidation.

As a result of these product improvements, ShareFile's sales grew over 44% compared to the second quarter of 2014.

A growing contract and product pipeline will drive growth

More importantly, Citrix executed 46 transactions of over $1 million in the quarter, with more than 50% of these transactions from the Workspace Services business. In total, the Americas, EMEA and Pacific recorded 34, 9, and 3 transactions, respectively. Thus, Citrix's renewal rate in the previous quarter was robust, which bodes well for the company going forward.

However, the delivery networking business of Citrix suffered during the previous quarter, posting a 50% fall in ByteMobile sales as compared to the second quarter of 2014. In addition, NetScaler's internet and cloud segment for the quarter also fell 40% over last year, somewhat offset by an 8% growth in the Enterprise segment.

However, the company saw satisfactory growth in the Enterprise segment and Windows App Delivery license mix, while the workspace services segment was more than offset by a sharp decline in the delivery networking segment.

In addition, Citrix successfully executed more than 650 virtualization transactions last quarter, with NetScaler sporting an attach rate of 10%. The networking major transacted with approximately 2,200 unique customers, comprising of 40% new customers. Specifically, the VPX edition and the SDX platform expanded over 20% and 40%, respectively, as compared to the second quarter of 2014. In total, these two platforms depict 40% of the entire NetScaler mix.

Positive sentiment

The consensus estimate among 40 investment analysts that evaluate Citrix Systems suggests that the company will outperform the market. This consensus rating has stayed the same way since the investment analysts' sentiments improved on July 29, 2015. The earlier consensus estimate suggested investors to hold their position into the company.

A majority of the analysts are positive about the growth prospects of Citrix, primarily driven by its continued strategic growth investments and solid cost control initiatives to optimize the balance sheet and support core investments.

Valuation and conclusion

Overall, investors are advised to buy Citrix Systems for the long run as the company's valuation is favorable. It has a trailing P/E ratio of 46, which comes down to 19 on a forward P/E basis. This means that Citrix is expected to deliver earnings growth going forward. More importantly, Citrix is expected to sustain its strong earnings growth in the long run. This is because Yahoo! Finance analysts expect its bottom line to grow at a compound annual growth rate of 13.4% over the next five years, which is greater than the 10.7% growth its has achieved in the last five years.

Hence, even though Citrix has appreciated strongly this year and trades near its 52-week highs, it is still a good investment for the long run.

Published on Aug 24, 2015
By Harsh Singh Chauhan

Copyrighted 2020. Content published with author's permission.

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