Analysts' Choice: Connect To Growth With Citrix Systems

5/22/2017


  Recent Price
$83
  Dividend
$0.00
  Yield
0.0%
  P/E Ratio
16
  Shares (millions)
158
  Long-Term Debt as % of Capital
44%
  52-Week Price Range
$95.90 - $70.24

The power of Buy and Long-Term Buy Citrix Systems ($83; CTXS) lies in connections. The company provides software and services that help deliver data and services over computer networks and clouds. On its website, Citrix describes its job like this: "By continuously evolving the secure delivery of applications and data, we keep people, organizations, things, and ideas connected anywhere, any time, and on any device."

Think of Citrix as an electronic middleman, a role that won't go away as long as technology continues to evolve. This ubiquity has helped Citrix deliver consistent growth — revenue has risen in each of the last 14 years and per-share profits in each of the last eight.

Both of those streaks will end this year, and Citrix's Quadrix Overall score has fallen in recent months, dragged down mostly by lower scores for Momentum, which considers recent operating results.

Low expectations

Analysts project sales down 18% for the June quarter and 17% for the September quarter, with per-share profits falling 18% and 10%, respectively. The declines reflect the January spin-off of Citrix's former GoTo unit into a merger with LogMeIn ($110; LOGM) and weakness in Citrix's older desktop-virtualization businesses.

Excluding GoTo, revenue rose 1% in the March quarter, with billings up 5% and deferred revenue 11%, reflecting an increasing reliance on subscription sales, which tend to depress growth in the near term but should strengthen and stabilize the future revenue stream. Revenue from software-as-a-service jumped 24% in the quarter, helping to offset a 1% decline at the much larger networking business.

The company said demand for its subscription-based products remains strong, and it expects 3% to 4% revenue growth excluding GoTo for the rest of the year. The consensus calls for 4% growth in 2018, with per-share profits up 10% on higher margins; GoTo was one of Citrix's lower-margin units.

Citrix shares slipped in late April after profit guidance for the June quarter came in lower than expected, then rallied on takeover speculation. Three private-equity firms have reportedly made offers for Citrix, and at least one strategic acquirer has also shown interest. Still, the shares dipped in mid-May on rumors that interest was fading. The shares are still up 16% for the year, excluding the spin-off.

Despite the run-up Citrix remains attractively valued. At 17 times expected current-year earnings, Citrix trades at a 38% discount to the median application-software developer in the S&P 1500 Index.

Activist investor Elliott Management, which pressured four companies to sell themselves last year, has held a seat on the board of Citrix since 2015. A management shakeup last year and this year's GoTo divestiture make Citrix a simpler and more streamlined company.

At this price, the stock still has appeal. We will be watching for developments on both the operational and acquisition fronts. Obtain an annual report for Citrix Systems Inc. at 851 W. Cypress Creek Road, Fort Lauderdale, FL 33309; (954) 267-3000; www.citrix.com.

CITRIX SYSTEMS
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Mar '17
0.97
vs.
1.00
1%
95.90
-
70.24
19 - 14
Dec '16
1.61
vs.
1.66
0%
92.40
-
81.36
18 - 16
Sep '16
1.32
vs.
1.04
3%
89.50
-
78.57
18 - 16
Jun '16
1.20
vs.
1.00
6%
90.00
-
76.25
19 - 16
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2016
3.42
5.32
0.00
92.40
-
60.91
17 - 11
2015
3.28
4.34
0.00
84.17
-
56.47
19 - 13
2014
3.14
3.30
0.00
72.89
-
51.18
22 - 16
2013
2.92
3.02
0.00
77.16
-
54.52
26 - 18
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
75
29
63
91
85
44
81

   * Earnings exclude special items.
   † Quadrix scores are percentile ranks, with 100 the best.
   NA Not available.


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