F5 Networks Inc

F5 Networks Inc (NASDAQ: FFIV) is the multi-cloud application security and delivery company serving government and world’s largest private enterprises.

Investment Highlights – F5 Networks Inc – Buy at USD 186.66

• The rising digital transformation across the globe had boosted the demand for the Company’s application security and delivery solutions.
• With regards to the top-line revenue, FFIV had shown around 11% growth in GAAP revenue and about a 10% increase in non-GAAP revenue during Q2 FY21.
• The consensus estimates had indicated earnings per share to grow significantly for the next three years (FY21 to FY23).
• FFIV had shown decent growth in non-GAAP net income from USD 2.23 per share during Q2 FY20 to USD 2.50 per share for Q2 FY21.
• From a technical standpoint, the stock is hovering around the lower Bollinger band, indicating an upside potential in the stock price.

Key Risks

• The cybersecurity attacks on its networks, products or services may result in reputational damage and hamper the growth prospects.
• Sustained high demand for IT products and consumer electronics categories has created logistic delays.
• Any rise in interest rates would make it difficult for the Company to raise capital in the future.

Recent Developments

On 17 June 2021, FFIV had announced the appointment of Michael Montoya to the Board of Directors on an immediate basis.

Q2 FY21 Financial Highlights (for three months ended 31 March 2021, as of 27 April 2021)

 (Source: Company result)

• The non-GAAP product revenue remained around 18% during Q2 FY21, contributed by 20% software revenue growth and 17% systems revenue growth.
• The GAAP net income for Q2 FY21 remained USD 43 million.
• The Company had cash & cash equivalents of USD 532.17 million as of 31 March 2021.

One Year Share Price Chart

 (Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (Illustrative) 

Conclusion

The Company had managed to provide guidance for Q3 FY21. Moreover, it expects to achieve top-line revenue ranging from USD 620 million to USD 650 million. The non-GAPP earnings would be expected to remain in the range between USD 2.36 per share and USD 2.54 per share. Furthermore, the accelerated pace of digital transformation had brightened up the Company’s prospects. The stock made a 52-week low and high of USD 116.79 and USD 216.15, respectively.

The next important support level on the technical chart is at USD 135.90.

Based on the decent revenue guidance, bright industry outlook and valuation method shown above, we have given a "BUY" stance on F5 Networks Inc at the closing market price of USD 186.66 (as of 30 June 2021), with a lower double-digit upside potential based on a 23.67x Price/NTM Earnings per share (approx.) on FY21E earnings per share (approx.).

Clearway Energy Inc

Clearway Energy Inc (NYSE: CWEN) is one of the largest renewable energy owners with over 4,200 net MW of installed wind and solar generation projects.

Investment Highlights – Speculative Buy at USD 26.48

• With initial siting campaigns and IC queue position applications for utility solar, utility wind, and solar-coupled and stand-alone storage, the business is setting its pipeline for expansion in H2 FY21.
• CWEN announced an increase in the quarterly dividend by 1.5% for Q2 FY21 and, it is on the way to achieving the annual target of 5%-8% annual growth in the dividend.
• CWEN maintains the long-term target of USD 350 million annual deleveraging and an 80%-85% payout ratio target.
• CWEN increased the outlook for CAFD (“Cash Available for distribution”) per share driven by interest savings from the refinancing of the ‘25 Senior Notes’.
• From a technical standpoint, the stock is hovering around the lower Bollinger band, indicating an upside potential in the stock price.

Key Risks

• The organization has several freshly built facilities that may not operate as expected or require extra investments to meet output goals.
• The indebtedness of the Company could adversely affect its ability to raise additional capital.
• Maintenance, expansion, and refurbishment of electric generation facilities involve significant risks that could result in unplanned power outages or reduced output.
• The Covid-19 restrictions and lockdowns could hurt the operations, financial position, and performance in the future.

Q1 FY21 Financial Highlights (for three months ended 31 March 2021, as of 06 May 2021)

 (Source: Company result)

• In the recent financial numbers for Q1 FY21, the Company reduced its net loss from negative USD 107 million in Q1 FY20 to negative USD 76 million in Q1 FY21.
• It also raised USD 925 million through the issuance of 2031 “Green Bonds” Senior Notes.
• The Company had generated an operating cash flow of USD 47 million during Q1 FY21.

One Year Share Price Chart

 (Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (Illustrative)

Conclusion

With an increased CAFD estimate of USD 1.85 per share, management reiterated its annual dividend increases of 5% to 8%. CWEN continues to achieve its business goals through balance sheet optimization and new project execution, all of which will lead to long-term growth. The recent acquisition of 264 MW Mt Storm Wind project would help achieve the targets and guidance in the coming years. Clearway has positioned itself for sustainable growth through operational efficiency, and the latest collaboration and liquidity would fuel the success in the coming years. The stock made a 52-week High and Low of USD 37.23 and USD 22.06, respectively. On the technical chart, the next important support level is at USD 23.16.

Based on the improved outlook for CAFD, dividend growth with support from valuation conducted above, we have given a "SPECULATIVE BUY" stance on Clearway Energy Inc at the closing market price of USD 26.48 (as of 30 June 2021), with a lower double-digit upside potential based 32.53x Price/ NTM Earnings per share (approx.) on FY21E Earnings Per Share (approx.).

Zix Corporation

Zix Corporation (NASDAQ: ZIXI) is the provider of various IT security services to meet business data protection and compliance needs.

Investment Highlights – Speculative Buy at USD 7.05

• The Company has a diversified customer base with robust go-to-market channels of direct sales teams, VARs, and MSPs with no customer contribution of more than 1% of revenue.
• The Company’s ARR (“Annual Recurring Revenue”) has grown by CAGR ~34.4% from FY16 to FY20 to USD 238 million, and the Company plans to reach USD 500 million ARR by FY25, highlighting strong growth in the future.
• ZIXI has generated substantial cash flow with 124% growth from FY19 to FY20.

• From a technical standpoint, the stock is trading very close to the lower Bollinger band, indicating an upside potential in the stock price.

Key Risks

• Because Zix's revenue model is dependent on consumers exchanging confidential information via email and few social media platforms, a move to alternative communication channels could hurt the company's growth prospects and financial condition.
• If the Company fails to market its product or achieve and maintain influential customers, then that could negatively affect the business.
• Any breach in security or cyberattack could cause loss of reputation and loss in customers.
  

Financial Highlights for the quarterly period ended 31 March 2021 (Q1 FY21) (as on 05 May 2021)

 (Source: Company result)

• The ARR of the company increased by 14% on a YoY basis to a record figure of USD 243.6 million.
• There is a consistent rise in services per secure cloud customer from 1.24 in Q1 FY20 to 1.31 in Q1 FY21. However, new customers have reduced from 5,264 in Q1 FY20 to 3,861 in Q1 FY21.
• Cash flow from operations has risen by 142% on a YoY basis to USD 10.7 million in Q1 FY21.
  

One Year Share Price Chart

 (Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (Illustrative)

Conclusion

The Company has shown consistent growth in revenue and profitability over the last year with higher liquidity and a well-positioned balance sheet. The Company has outperformed its revenue expectations of USD 58.7-USD 59.8 million and posted revenue of USD 60 million during Q1 FY21, reflecting the strong performance and future opportunities for the company. The management focuses on customer acquisition and retention, expanding product portfolio, and prioritized channel investments which will be the key revenue drivers for the future. The Company plans to establish itself in a position to better exploit market trends in business resilience, compliance, and email security. The stock made a 52-week High and Low of USD 10.37 and USD 5.24, respectively.  

On the technical chart, the next important support level is at USD 5.40.

Considering the impressive ARR growth and valuation done using above method, we have given a " SPECULATIVE BUY " stance on Zix Corporation at the closing market price of USD 7.05 (as of 30 June 2021), with a lower double-digit upside potential based 17.91x Price/ NTM Earnings per share (approx.) on FY21E Earnings Per Share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*The dividend yield is subject to change as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

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