Arista Networks Inc. shares hit their best trading day on record after the network company beat expectations with its latest results and announced plans for a major share buyback and split.
is up 24.8% in Tuesday trading and is on track for the largest percentage increase in a single day on record. The current record is a rally of 21.8% on July 1, 2014.
In addition to reporting on results late Monday, Arista hosted an analyst day that fueled optimism about the company's long-term revenue opportunities.
"Arista's combination of Q3 21 earnings pressure and Analyst Day has brought several positive surprises to investors and is likely to result in significant upward revisions to consensus earnings, not just for 2021 or 2022, but normalized earnings as the cycle progresses," wrote JP Morgan's Samik Chatterjee in a customer note.
Chatterjee highlighted strong demand from cloud customers and an increase in the 200G / 400G upgrade cycle, both of which are helping to raise expectations for revenue growth of around 30% in 2022, versus estimated growth of around 25% in this year.
"The confidence shown by the sales forecast speaks for the strong backlog the company already has and the security of delivery through its purchase commitments, which puts Arista well-positioned in terms of both supply and demand," Chatterjee wrote.
While Arista's forecast of an average annual growth rate of 15% from 2020 to 2025 was lower than expected, Chatterjee said Arista's management team may have taken a conservative approach to that forecast.
"(We) e believe investors will acknowledge the conservatism the management team is likely to embed in the updated long-term guidance after struggling to meet the previous targets released on Analyst Day 2019," he wrote while speaking maintained its overweight position and raised its price target from $ 455 to $ 500.
Jefferies analyst George Notter also suspected some conservatism in the forecasts, specifically pointing to the 30% sales growth target for 2022. There are opportunities for Arista to grow sales through higher pricing, higher campus sales, and realizing pent-up delayed revenue, he said, but there is room for meaningful growth in its core business as well.
"In addition, it is clear that Facebook will be much bigger in the next year," he added.
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Notter also highlighted Arista's "best transparency" in its business. While Arista's management required four months of lead times for current orders, executives also found that cloud customers "currently give the company over a year of transparency (from the typical 1-2 quarters)," Notter wrote.
He has a hold rating on Arista's stock and admitted that he "missed this one". Notter recommended Ciena Corp.
Stock "as a much cheaper way to play many of the same data center trends as Arista." (Ciena stock was up nearly 9% in Tuesday's session.)
Evercore ISI analyst Amit Daryanani added to Arista's discussion of its sizeable cash position and the flexibility it offers with respect to purchase commitments.
Arista "is investing heavily in the business, including the $ 2.1 billion purchase commitments that will give Arista a powerful weapon to accelerate stock gains." The profits could be made “not only against traditional network providers,” he continued, but also against white box providers like Hyperscaler.
Daryanani outperformed the stock and increased its price target from $ 420 to $ 480.