Citrix Systems, Inc. (NASDAQ:CTXS) is getting smacked down following a disappointing earnings announcement. As we type, the stock is down more than $5 and creating 52-week lows because the company guided 2014 revenue estimates below Wall Street's expectations.
The NASDAQ 100 member provides cloud computing solutions worldwide. The company operates in two divisions, Enterprise and Online Services and may be best known for its GoToWebinar service.
Citrix management says 2014 earnings per share should be in the range of $2.85-$2.95, versus the street's consensus view of $3.35. Meanwhile, "net revenue is targeted to grow by approximately 8 percent to 10 percent."
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The unexpected news unleashed a slew of downgrades (where were they yesterday?) from Citigroup, Needham, RW Baird, Pacific Crest, JMP Securities, and Stephens, but one firm sees today's weakness as a buying opportunity.
Drexel Hamilton upgraded the business software & services provider to a "Buy" from a "Hold" recommendation; although, the price-target was trimmed to $65 from $72. Hamilton Analyst, James Gilman believes the reason for the reduced outlook is due to investments. CTXS discontinued a service popular with small-to-mid sized business but re-instated XenApp two days ago.
Ramped up research and development into XenApp is the genesis for lower EPS in 2014 than anticipated. Typically, increased R&D doesn't bother iStock as we see it as an investment in tomorrow.
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In light of the updated information, Gilman put out earnings and revenue estimates of his own. That analyst calls for fiscal-year 2014 earnings-per-share of $2.86 on sales of $3.19 billion.
Given that many of Drexel Hamilton's peers are running the other way and CTRX's share price is activating depth charges, let's see if the tech company is a buying opportunity or if Citrix remains over-priced.
We'll use Gilman's numbers, CTRX's recent price-to-sales (P/S) and price-to-earnings (P/E) history to calculate potential price points for the stock.
The cloud company's average P/E in the last five years is 39.85 with a max of 56.32 and a low of 21.19; however, Wall Street has not paid less than 30 times earnings since April of 2009. Today's P/E is 29.27 and dropping.
Using the five-year low P/E and Gilman's $2.86 EPS estimate, we get a price of $60.60, which is 15.34% upside from here. That's probably better than the indexes will offer. Obviously, the return numbers look much better at the average and max P/Es, which translate to targets of $113.97 and $161.08 – neither of which is likely to happen minus another round of unexpected news.
The average P/S ratio in the last five-years is 5.38 with a max of 8.57 and a min of 2.37. Again, we'll concentrate on the bottom level, which would set a floor price of $40.56. Using the average, we get a price of $92.07. Let's not bother with the max, cause it ain't happening. Since 2009, CTRX's price-to-sales ratio traded above 4 more than 90% of the time. We get a price-target of $68.54 at four times sales.
Overall: Running away from Citrix Systems, Inc. (NASDAQ:CTXS) in the long-term might not be a smart idea. Based on the latest data, CTXS shares could trade between $60.60 and $68.54 in the next 12 months or so. However, from a short-term and chart perspective, the next level of support should come into play from $49 to $50.
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