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Citrix Grows EPS, Sales Faster Than Modeled After Reorganization

Apparently not too distracted by its reorganization, the highest-rated issue in IBD’s Computer Software-Specialty Enterprise industry group,  Citrix Systems ( CTXS ) boosted its Q1 earnings faster than analysts had expected. Reporting after the market close, the maker of cloud management software said Q1 adjusted earnings rose 81% to $1.18 per share, where Wall Street expected 92 cents. Revenue rose 8.5% to $826 million, while analysts polled by Thomson Reuters had modeled $789 million. Citrix stock was up nearly 7% in after-hours trading, following the company’s Q1 earnings release. Shares closed up a fraction, at 80.56, in the stock market today , just 4% off a four-year high of 84.17, hit on Oct. 28. “I am very pleased with our performance this quarter on both the top line and bottom line,” Citrix CEO Kirill Tatarinov said in the company’s earnings release. “The progress we made in refocusing the company — simplifying our portfolio and sharpening our message — is starting to pay off. “We are seeing a strong improvement in our operating margin, and our focused strategy has made it easier for our field teams and channel partners to execute; consequently, we saw improvement in the top line. It gives us a measure of confidence that we are on the right path, and it gives us opportunities to solidify our leadership position in our core areas.” Q1 marks Citrix’s fourth consecutive quarter of double-digit earnings growth following three quarters of 2%-to-7% growth. Profits have outperformed sales, up by only single-digit percentages, now for seven straight quarters. Last week, Robert W. Baird analyst Steven Ashley reiterated an outperform rating with an 85 price target on Citrix stock. He said Baird had surveyed 96 Citrix channel partners and got back mixed results, “consistent with management’s guidance that factored in normal (Q1) seasonality and allowed for possible disruptions from reorganizational activity.” “We continue to believe prospects for improved channel performance are underappreciated,” Ashley said. The company’s reorganization included the layoff of about 1,000 employees and contractors in December and January, the pending spinoff of Citrix’s GoTo lines and a $200 million annual reduction in other operating expenses. In February, Kevin Parker, former CEO of Deltek, was named chairman of the GoTo spinoff, expected to be completed late this year. The third-largest in IBD’s Computer Software-Specialty Enterprise industry group, Citrix boasts a $12.45 billion market cap, half the size of the largest, VMware ( VMW ), but barely smaller than CA ( CA ). However, VMware carries an IBD Composite Rating of 47, compared with CA’s 54 and Citrix’s 92, meaning Citrix is outperforming  92% of all S&P 500 stocks based on earnings, sales, institutional ownership and other fundamental metrics.

What Does Caterpillar’s Bounce Off Low Say About Its Prospects?

Big-cap Caterpillar ( CAT ) is a long way from qualifying as a CAN SLIM stock. The plunge in commodity prices has battered the maker of construction and mining equipment. However, even aggressive growth investors will sometimes watch for either a turnaround or a cyclical play. The construction- and mining-machinery industry group ranked No. 8 among 197 industry groups in Wednesday’s IBD. Seven weeks ago, the group was No. 131. This suggests that the deep-value camp is coming into the stock, even if many people in the industry expect 2016 to be another tough year. Caterpillar will report Q1 results before the market’s open Friday. The Street isn’t expecting much. Earnings are expected to roll in at 68 cents a share, down 60% from the year-ago period. Revenue is forecast to drop 26% to $9.39 billion. (Q1 is normally Caterpillar’s slowest quarter.) One long-range factor that could eventually boost Caterpillar is the worldwide trend toward urban living. A United Nations study estimates that by the year 2050, 70% of the world’s population will live in cities, up from 54% in 2014. Construction and mining of construction materials will be needed, and Caterpillar is well-positioned to benefit. In 2011, Cat completed the acquisition of Bucyrus, widely regarded as a great acquisition. The weak mining sector, though, has delayed the potential benefits. Yet, that won’t always be so. Caterpillar’s stock chart shows a Jan. 20 bottom in the roughly 18-month decline. Since then, Caterpillar has risen about 40% and is 10% off its 52-week high. Is this stock a buy? Probably not. As William O’Neil wrote in “How to Make Money in Stocks,” an individual investor buying a turnaround stock should “look for annual earnings growth of at least 5% to 10% and two straight quarters of sharp earnings recovery that lift results for the latest 12 months into or very near new high ground.” One way to play Caterpillar is as an income stock. The company’s quarterly dividend is 77 cents a share, which represents an annualized yield of 3.8%. Cat usually announces a dividend increase in June. How many red marks does Caterpillar’s stock get? See on IBD’s Stock Checkup Small-cap rival Joy Global ( JOY ) reported earnings declines for fiscal 2013-15, and the Street expects a 92% drop in fiscal 2016 ending in October. However, analysts foresee a 144% earnings jump in fiscal 2017. At the March 3 earnings call, Chief Financial Officer James Sullivan said the backlog increased almost 3% in fiscal Q1 ended in January. “This is the first time that backlog has increased since the second quarter of 2014,” Sullivan said. Like Caterpillar, Joy marked a low Jan. 20. Joy has rebounded more than 150% since then. Joy lacks the strong numbers that would attract IBD-style investors. Joy announced in December that it was slashing its quarterly dividend from 20 cents a share to 1 cent a share. Image provided by Shutterstock .

PC Devastation Fuels Intel Jobs Slash, Hard-Disk Drive Crash

The sharp drop in PC sales that is the main reason Intel ( INTC ) will slash 12,000 jobs is also why the disk drive industry continues to get slammed. The two largest disk drive makers, Western Digital ( WDC ) and Seagate Technology ( STX ), for several years have tried to deftly maneuver through the dramatic drop in PC sales. Global PC shipments fell 9.6% in the first quarter, year over year, to 64.8 million units, according to research firm Gartner. It was the sixth consecutive quarter of declines and the first time since 2007 that quarterly shipments fell below 65 million units. Chips and disk drives have been two central elements in every PC since personal computers emerged about 35 years ago. Intel has moved to lessen its reliance on PCs by getting more chips placed in mobile devices, data centers and elsewhere. “We are evolving from a PC company to a company that powers the cloud and billions of smart connected and computing devices,” said Intel CEO Brian Krzanich, when the company reported fourth quarter earnings on Tuesday. Besides the PC drop, Seagate and Western Digital have been hit hard by the emergence of tablets and smartphones, which don’t contain disk drives at all. Seagate’s year-over-year revenue has decelerated for 10 of the last 12 quarters. The trend is similar at Western Digital. That is expected to continue when both companies report quarterly earnings next week. Weston Twigg, an analyst at Pacific Crest Securities, expects disk drive revenue to decline about 8% annually through 2020, he wrote in a research report Tuesday. Both companies have sought to battle through the onslaught by diversifying into other areas, mainly by investing in solid-state memory chips and the development of all-chip storage systems, called solid state drives. Twigg expects solid-state drives will represent about half of data storage drives by 2020. Western Digital is making a huge play in the solid-state storage market with its $19 billion acquisition of SanDisk ( SNKD ), a leading provider of flash-memory chips used in smartphones and tablets. The deal positions Western Digital as having one of the most complete lines of storage among all providers. The deal, though, is a big risk for two reasons — Western Digital is taking on lots of debt, and the flash-memory market is highly competitive with the potential for substantial overcapacity, Twigg writes. This includes competition from Intel, Micron ( MU ) , Samsung and Toshiba. The good news is that Western Digital will be well-positioned if data-intensive applications like artificial intelligence, robotics, and the Internet of Things drive substantially higher demand for data storage, with hard-disk drives creating the backbone of these systems, he said. These same trends could bolster Seagate, though the company has been far more cautious about entering the chip-storage arena than Western Digital.