Arista Networks, Inc. (NYSE:ANET) shares are steadily advancing following the cloud networking company's strong quarterly results.
The Arista Analysts: Needham analyst Alex Henderson maintained a Hold rating on Arista shares.
Credit Suisse analyst Sami Badri reiterated an Outperform rating and increased the price target from $166 to $175.
Raymond James analyst Simon Leopold maintained a Market Perform rating.
KeyBanc Capital Markets analyst Thomas Blakey reiterated an Overweight rating and upped the price target from $165 to $172.
The Arista Theses:
Needham Says Arista's Valuation Reasonably Fair: Arista's fourth-quarter revenues climbed 27% year-over-year, and earnings per share exceeded estimates by 10% due to a robust 39% operating margin, Needham analyst Henderson noted.
Reflecting a better margin flow-through, the company guided first-quarter revenue growth guidance to a robust 38% and also maintained its 30% revenue growth guidance for 2022, the analyst said.
Among the other strong metrics are Arista Enterprise and Financials, which contributed 40% of the total first-quarter revenues and witnessed 40% growth, and international business, which contributed 29% to the topline and saw 44% growth, Henderson added.
Cloud Titans accounted for 30% of Arista's 2021 revenues, while Microsoft Corporation (NASDAQ:MSFT) and Meta Platforms, Inc. (NASDAQ:FB) contributed 15% and just under 10%, respectively, the analyst said.
Arista, though stating that supply constraints will likely continue well into 2023, has been able to meet its demand thus far, he noted. Adding that the company retained its long-term growth target for 2023-2025 at 10%-15%.
"Arista is selling at roughly 2x-3x its long term 10%-15% growth rate, and we consider this reasonably fair value," the analyst said.
The analyst also sees limited scope for meaningful upside to the current high rate of growth. The unpredictability of cloud demand may hurt Arista's valuation even as it's clearly rebounding in 2022, he added.
Related Link: Here's Why Loop Capital Considers Arista Networks As Top Pick For 2022
3 Dynamics Driving Credit Suisse's Bullish Thesis: Subscription-based network services and software's contribution came in at a better-than-expected 22% in 2021, Credit Suisse analyst Badri noted.
The analyst views the company's guidance for 15% CAGR through 2025 as conservative, especially as the majority of the projected growth does not include the recently increased product list prices.
Credit Suisse said its bullish thesis is predicated on three key dynamics, namely a significant data center capacity influx expected beyond 2022, strong campus switching and WLAN product revenue ramp, and the dissolving white box threat.
RayJay Sees Deceleration In Sales Growth: The strong 2022 guidance is a function of Arista's favorable exposure to large cloud projects as well as the campus switch business, RayJay analyst Leopold said.
"This stock remains tricky; we have seen conservative forecasts from management before, but it does not seem justified to pay a peak multiple on peak growth," the analyst said.
Despite the set-up for double-digit growth in 2023, the analyst sees sales growth decelerating.
Strong Growth Sustainable Long-term, KeyBanc Says: Arista is a primary beneficiary of strong cloud capex trends and the company is in the early stages of gaining share in adjacent, large TAMs, particularly Campus, KeyBanc analyst Blakey said.
"We believe these trends should sustain strong DD% profitable growth LT, supporting our outlook on shares," the analyst said.
Arista Price Action: At last check, Arista shares were surging up 7.05% at $131.48.
Related Link: Why Arista Networks Stock Is Trading Higher During Monday's After-Hours Session
