We reaffirm our long-term Neutral recommendation on Citrix Systems Inc. (CTXS - Analyst Report). The company posted strong financial results for the fourth quarter of 2012, outpacing the Zacks Consensus Estimates.
Why Kept Neutral?
The stock price of Citrix moved up nearly 33% in the last year, outpacing the S&P 500 return of just 23.4% over the same period. Citrix is currently trading at the high end of its 52-week price range. With respect to several valuation metrics, the stock is also trading at significantly higher multiples compared to the S&P 500. We believe the company is currently fairly valued and the stock price will not provide above market gains any time soon. Citrix currently has a Zacks Rank #3 (Hold).
Risk/Reward Balance Citrix
Citrix is concentrating on three broad markets: Desktop virtualization, Cloud Infrastructure and networking, and Collaboration and sharing. In fourth-quarter 2012, 55 deals exceeded $1 million. Out of the total, 42 orders were for XenDesktop alone, the flagship desktop virtualization product of Citrix.
The acquisition of Cloud.com Inc. provided Citrix the CloudStack product suite to offer an open-source platform-as-a-serviceenvironment that enables the cloud service providers to deploy and manage scalable applications in a simplistic and cost-effective way. With Cloud.com in its kitty, Citrix is now comfortably placed at par with the cloud computing software leader, VMware Inc. (VMW - Snapshot Report). The company became a strong challenger for Amazon.com Inc.’s (AMZN - Analyst Report) web services software and Microsoft Corp.’s (MSFT - Analyst Report) Windows Azure software. Citrix further strengthened its position in the cloud-based data storage segment after its acquisition of ShareFile, a leading provider of secure, cloud-based data storage, sharing and collaboration solutions.
Nevertheless, the global economy is still suffering from fluctuations and yet to fully recover from recession. Various geo-political concerns in the European and African countries have slowed the momentum of economic recovery. This may make Citirix’s near-term financials volatile.
Any adverse macro-economic situation may result in the slowdown of enterprise IT spending. Hence, the desktop virtualization market may evolve less than anticipated and Citrix may lose its market share more quickly than expected. At present,Citrix is facing two pronged problems: (1) continuation of global macroeconomic headwinds slows the momentum of new license sales and (2) growing demand for tablets instead of PCs or notebooks.