Stock Watch
Citrix Systems: New Tricks
This tech firm has been trying to find new ways to drive growth -- and has impressed Wall Street with its progress.
July 27, 2005
Shares of Citrix Systems (CTXS) got a jolt following the company's quarterly earnings release on Tuesday. The software company's profits exceeded Wall Street's estimates, and it offered a bright outlook for the rest of this year and next.
Legg Mason analyst Todd Weller was encouraged, particularly by Citrix's improved growth outlook. He upgraded the stock to "buy" on Wednesday. Shares leapt about 9% by Wednesday afternoon.
The path of Citrix's stock has not been a smooth one over the past five years. Like so many tech stocks, shares of Citrix crumpled from 2000 to 2002, falling from $120 to $5. But Citrix was no dot-bomb. Its original (and still primary) product, software that lets you connect to your company's network from your home, the airport or Starbucks, continued to sell well over the next few years. As a one-product company, however, Citrix saw itself as vulnerable to inroads from such powerhouses as Microsoft and Cisco Systems. Before long, sales and profit growth slowed, and the shares, after bouncing off the bottom, stalled at around $20.
But this company has been able to learn some new tricks. In 2003, the Fort Lauderdale, Fla., firm introduced new products that increase the speed and security of remote-access computing, and new applications, such as one that enables users to gain access to online meetings. The goal, says chief financial officer David Henshall, was to offer "hyper-growth applications" that would reduce Citrix's dependence on its traditional software. Two years into the plan, Citrix's more recent products account for 25% of sales.
And its growth initiative is the most important takeaway from the firm's quarterly results, Legg Mason's Weller says.
Citrix scours the bazaar of small technology companies for acquisition opportunities. Its latest purchase, announced in June, was NetScaler, which builds network equipment that speeds up access to applications by five times. Once the deal is completed, Citrix will be able to offer the equipment to its 150,000 customers. Citrix shares fell 10% on the news of the NetScaler purchase because it will probably reduce quarterly earnings by a few cents a share through 2006. But Henshall says the purchase both preempts the competition and gives Citrix another fast-growing product line.
Although Weller recognizes that the NetScaler purchase is a gamble for Citrix, he likes the move, as it "could provide more fuel for growth" in the second half of 2005 and, more so, in 2006.
Weller raised his 2005 and 2006 earnings estimates for Citrix to $1.05 and $1.20, respectively. He suspects profit estimates could continue to rise.
At $24, the stock trades at 23 times the $1.03 per share that analysts surveyed by Thomson First Call figure the company will earn in 2005, and 20 times the 2006 forecast of $1.17. Analysts predict long-term earnings growth will be about 13% per year.
--Jeffrey Kosnett and Lisa Dixon