Wednesday, January 24, 2007

Color on results: Citrix Systems (NASDAQ:CTXS)

Mostly positive comments on Citrix Systems (NASDAQ:CTXS) following Q4 results:

- JP Morgan notes there is some hair here--but this is a much better outcome than most expected and CTXS should trade well.

At first blush, the results and guidance look strong across the board with the exception of operating margins, where CTXS has been historically inconsistent. Q4 earnings of $0.39 exceeded consensus of $0.38 with about $0.01 from repurchase activity and operating margins of 26.7% were below 27.6% estimate. Deferred revenue of $356M was ahead of $349M estimate while CFO of $97M exceeded firm's $82M target.

The stronger license is likely a result of the direct business-where firm's checks were stronger and should provide comfort that there is some stabilization in the core App. Virtualization business, which should enable mgmt. to maintain growth targets for the App Virtualization-key for CTXS to
emerge from its transition post Q107. They also believe ANG was solid vs. $28M target.

Guidance encapsulates Q1-which most viewed as a key risk heading into the quarter--and should enable consensus estimates to modestly move higher, and leave room for further upwards earnings revisions through the year.

Shares traded at 20.7x JPM's CY07 $1.55 in the after market, still below group average of 22-24x.

- Merrill Lynch notes Citrix delivered modest 4Q06 EPS upside, while across-the-board YoY license strength should temper lingering pessimism over Presentation Server. The robust product pipeline supports firm's conviction in Citrix' portfolio strategy, while added distribution breadth could underpin potential for appreciation in the shares.

Citrix' 4Q results suggest at least part of the weakness in Presentation Server in 3Q may have been execution related - which is easier to remedy than a secular decline. ML thinks management understands the need to maintain focus while expanding the product portfolio both organically and through acquisitions. Looking forward they expect a steady calendar of new product launches and new introductions to the channel beginning with the Partner Summit later this month. They continue to like the story and the stock and would be aggressive buyers at current levels.

Reits Buy and $39 tgt.

- Goldman Sachs notes Citrix Systems reported strong 4Q results, with core Application Virtualization business growing 11% in the quarter with license revenue growth of 2% year-over-year. The bear case had largely revolved around potential yoy declines, and thus the report should help bolster the belief that new use cases such as outsourcing, disaster recovery, and potentially even Vista upgrades for enterprises could drive low-mid-single-digit growth here.

Results should prove to be a positive for the stock, which has already rebounded significantly from its December lows when fears of Application Virtualization weakness were strongest. That said, they see plenty of new product releases and upgrades to carry performance higher from here. Firm's EPS estimates for FY07 and FY08 are $1.55 and $1.77 (ex-ESOs), compared to $1.55 and $1.76 previously.

- Stifel think there are not a lot of negatives but they believe that some could be disappointed in the lack of upside to EPS estimates for 2007 in the face of a higher 2007 revenue outlook along with the overall lack of margin expansion flavor in the story. Voluntary stock option investigation a minor negative but their sense is that the market cares less and less about stock option issues with each passing day.

Maintains Hold rating. The firm notes they clearly missed a short-term buying opportunity with early January concern about how 4Q would play out. At this point, they don't see any major near-term catalysts that would yield a meaningful acceleration in Citrix's growth and yield upside to estimates though a number of initiatives could prove interesting in terms of the 2008 outlook. They also don't believe that the shares will likely experience any significant multiple expansion in the near term.

Notablecalls: Waterpistol to the head, I think we will see an initial surge of short covering after the open, followed by a sizable pullback. But that's a low conviction call. The results were surprisingly good.

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