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Arista Networks (ANET) Up 4.7% Since Last Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for Arista Networks (ANET - Free Report) . Shares have added about 4.7% in that time frame, outperforming 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 Q3 Earnings Estimates on Record Revenues
Arista reported strong third-quarter 2022 results, wherein both the bottom and the top lines beat the respective Zacks Consensus Estimate, driven by solid demand trends and healthy customer additions. Adjusted earnings and revenues also improved year over year.
Net Income
On a GAAP basis, net income in the reported quarter improved to $354 million or $1.13 per share from $224.3 million or 70 cents per share in the prior-year quarter, primarily driven by top-line growth.
Excluding non-recurring items, non-GAAP net income was $391.9 million or $1.25 per share compared with $236.9 million or 74 cents per share in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 20 cents.
Revenues
Despite supply chain disruptions, total revenues soared 57.2% year over year to $1,176.8 million. The top line surpassed the company’s guidance of $1,025-$1,075 million and exceeded the consensus estimate of $1,060 million. The record revenues were primarily led by solid customer additions and growth in the enterprise vertical, along with accelerated shipments to cloud titan customers that were mostly deferred from the previous quarter.
Arista generated 83% of total quarterly revenues from the Americas and the remainder from international operations. Product revenues increased to $1,008.7 million from $604.2 million on healthy traction from existing products and the ramp-up of newer ones with the launch of various products. Service revenues grew to $168.1 million from $144.5 million, supported by renewals and subscriptions. Cloud titans were the largest in terms of the vertical mix, followed by enterprise, specialty cloud providers, financials and service providers. The company maintained its leading position in 100, 200 and 400-gig switching and achieved solid market control in client to cloud networking domain.
Other Details
Non-GAAP gross profit improved to $719.8 million from $486.1 million for respective margins of 61.2% and 64.9%. The non-GAAP gross margin was near the higher end of the company’s guidance of 60-62%, reflecting healthy software and services mix.
Total operating expenses increased to $292.6 million from $245.3 million in the prior-year quarter, owing to higher R&D costs, increased variable compensation and other headcount-related charges. Non-GAAP operating income increased to $492.1 million from $293.7 million in the year-ago quarter, with corresponding margins of 41.8% and 39.2%, respectively.
With improved customer demand and order visibility, the company is taking decisive steps to improve inventory levels and manufacturing capacity to negate supply-chain headwinds. Third-quarter inventory was up to 1.1 billion from 852.8 million in the prior quarter as it maintained buffer levels for certain components and products.
Cash Flow & Liquidity
In the first nine months of 2022, Arista generated $452.3 million of net cash from operating activities compared with $790.6 million in the prior-year period. As of Sep 30, 2022, the cloud networking company had $716.3 million in cash and cash equivalents. Arista repurchased shares worth $47.6 million during the quarter at an average price of $99 per share. The company has so far bought 7 million shares for $740 million as part of its $1 billion share repurchase program initiated in October 2021.
Q4 View
Arista is increasingly offering a software-driven, data-centric approach to help customers build their cloud architecture and augment their cloud experience. The company is increasingly gaining market traction in 100-, 200- and 400-gig high-performance switching products and remains well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations. Arista expects continued growth within its enterprise vertical in the forthcoming quarters, with customer mix being the key driver. For the fourth quarter of 2022, it expects revenues of $1,175-$1,200 million. It anticipates a non-GAAP gross margin of 60-62% and a non-GAAP operating margin of 40%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
The consensus estimate has shifted 11.94% due to these changes.
VGM Scores
Currently, Arista Networks has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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 belongs to the Zacks Communication - Components industry. Another stock from the same industry, Knowles (KN - Free Report) , has gained 5.3% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.
Knowles reported revenues of $178.2 million in the last reported quarter, representing a year-over-year change of -23.5%. EPS of $0.25 for the same period compares with $0.45 a year ago.
For the current quarter, Knowles is expected to post earnings of $0.32 per share, indicating a change of -33.3% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Knowles. Also, the stock has a VGM Score of B.
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Arista Networks (ANET) Up 4.7% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Arista Networks (ANET - Free Report) . Shares have added about 4.7% in that time frame, outperforming 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 Q3 Earnings Estimates on Record Revenues
Arista reported strong third-quarter 2022 results, wherein both the bottom and the top lines beat the respective Zacks Consensus Estimate, driven by solid demand trends and healthy customer additions. Adjusted earnings and revenues also improved year over year.
Net Income
On a GAAP basis, net income in the reported quarter improved to $354 million or $1.13 per share from $224.3 million or 70 cents per share in the prior-year quarter, primarily driven by top-line growth.
Excluding non-recurring items, non-GAAP net income was $391.9 million or $1.25 per share compared with $236.9 million or 74 cents per share in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 20 cents.
Revenues
Despite supply chain disruptions, total revenues soared 57.2% year over year to $1,176.8 million. The top line surpassed the company’s guidance of $1,025-$1,075 million and exceeded the consensus estimate of $1,060 million. The record revenues were primarily led by solid customer additions and growth in the enterprise vertical, along with accelerated shipments to cloud titan customers that were mostly deferred from the previous quarter.
Arista generated 83% of total quarterly revenues from the Americas and the remainder from international operations. Product revenues increased to $1,008.7 million from $604.2 million on healthy traction from existing products and the ramp-up of newer ones with the launch of various products. Service revenues grew to $168.1 million from $144.5 million, supported by renewals and subscriptions. Cloud titans were the largest in terms of the vertical mix, followed by enterprise, specialty cloud providers, financials and service providers. The company maintained its leading position in 100, 200 and 400-gig switching and achieved solid market control in client to cloud networking domain.
Other Details
Non-GAAP gross profit improved to $719.8 million from $486.1 million for respective margins of 61.2% and 64.9%. The non-GAAP gross margin was near the higher end of the company’s guidance of 60-62%, reflecting healthy software and services mix.
Total operating expenses increased to $292.6 million from $245.3 million in the prior-year quarter, owing to higher R&D costs, increased variable compensation and other headcount-related charges. Non-GAAP operating income increased to $492.1 million from $293.7 million in the year-ago quarter, with corresponding margins of 41.8% and 39.2%, respectively.
With improved customer demand and order visibility, the company is taking decisive steps to improve inventory levels and manufacturing capacity to negate supply-chain headwinds. Third-quarter inventory was up to 1.1 billion from 852.8 million in the prior quarter as it maintained buffer levels for certain components and products.
Cash Flow & Liquidity
In the first nine months of 2022, Arista generated $452.3 million of net cash from operating activities compared with $790.6 million in the prior-year period. As of Sep 30, 2022, the cloud networking company had $716.3 million in cash and cash equivalents. Arista repurchased shares worth $47.6 million during the quarter at an average price of $99 per share. The company has so far bought 7 million shares for $740 million as part of its $1 billion share repurchase program initiated in October 2021.
Q4 View
Arista is increasingly offering a software-driven, data-centric approach to help customers build their cloud architecture and augment their cloud experience. The company is increasingly gaining market traction in 100-, 200- and 400-gig high-performance switching products and remains well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations. Arista expects continued growth within its enterprise vertical in the forthcoming quarters, with customer mix being the key driver. For the fourth quarter of 2022, it expects revenues of $1,175-$1,200 million. It anticipates a non-GAAP gross margin of 60-62% and a non-GAAP operating margin of 40%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
The consensus estimate has shifted 11.94% due to these changes.
VGM Scores
Currently, Arista Networks has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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 belongs to the Zacks Communication - Components industry. Another stock from the same industry, Knowles (KN - Free Report) , has gained 5.3% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.
Knowles reported revenues of $178.2 million in the last reported quarter, representing a year-over-year change of -23.5%. EPS of $0.25 for the same period compares with $0.45 a year ago.
For the current quarter, Knowles is expected to post earnings of $0.32 per share, indicating a change of -33.3% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Knowles. Also, the stock has a VGM Score of B.