- Needham Analyst Alex Henderson reiterated buy on Extreme Networks, Inc EXT with a Price target $23.
- In contrast to components and semi-finished products, system backlogs are almost never ordered twice and rarely cancelled.
- System residues range from 30% Cisco Systems, Inc CSCO up to 60%+ at Juniper Networks, Inc JNPR, Infinera Corp INFNextreme and Ceragon Networks Ltd CRNT up to 100%+ at Ciena Corp CIEN and offer more than just good visibility against macro erosion.
- Despite macro worries and street expectations for falling estimates for the S&P for CY23, the analyst expects Extreme to deliver better and higher results.
- Extreme is still supply-constrained, with an order backlog representing over 60% of estimated product sales in CY23.
- In an environment where investors have braced themselves for valuation cuts, these backlogs, combined with improved availability and falling parts and logistics costs, offer ample upside potential for earnings and earnings per share, and are likely to drive valuations higher.
- In Extreme’s case, the analyst believes that current conditions already demonstrate the right momentum to achieve this result. In addition, Extreme has achieved excellent positioning for cloud-native AI. It has important new products to ramp up in its Universal line, which should further improve its competitive position and offer even better gross margins.
- As the economy slows, Henderson tries to improve supply and reduce parts costs.
- The analyst, in turn, believes this will enable Extreme to ship more products from its large and firm backlog than expected, leading to an upward trend in revenue and gross margins.
- The Street expects second-quarter ’23 revenue to rise 9% and earnings per share to rise 14% at mid-guide versus its toughest comparison of the year.
- Henderson expects growth to top 10%, EXTR to beat EPS and raise its guidance for 3Q23 (CY1Q) and FY23.
- In addition, the analyst expects that the improvement in supply will allow Extreme to reduce inventories and…
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