Barclays upgrades Arista, says cloud stock can sustain revenue growth going forward

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Cloud services provider Arista Networks looks attractive at current levels as it will likely keep its growth rate over the next few years, Barclays said. Analyst Tim Long upgraded the stock to buy while keeping his price target at $131 per share, which he called a “conservative” estimate. That target implies upside of 14% from Tuesday’s close of $114.07. “ANET is a high-valuation stock, but we believe this is justified given the high revenue growth rate and favorable margin and cash flow structure,” Long said in a note to clients Wednesday. “We see mid-teens revenue growth as sustainable for the next few years, and gross and operating margins should remain high.” Driving the sustained growth is expectations of expanded share in the data switching center; campus; and service provider markets. Long said the cloud will still add customers, but at slower rates than prior years. Taken together, these drivers can help the company expand its reach within markets collectively valued at $25 billion, the analyst said. The company has also been able to put itself on solid financial footing, Long said. Arista is shielded from elevated currency levels as 80% of revenue comes from North America. He said the company has also “successfully diversified its revenues” from relying mainly on large clients like Microsoft . CEO Jayshree Ullal said last month on CNBC’s “Mad Money” that the company was sparing no expense to fix supply chain issues. Meanwhile, Long downgraded Cisco from overweight to equal weight and lowered his price target by 18% to $46 from $56. Long cited stalled cloud growth and said planned moves to software that drummed up excitement had been slow compared to competitors. “We see peer companies growing faster in software despite similar backlog dynamics, likely highlighting weakness of some CSCO stand-alone software offerings,” Long said. “We also see CSCO more vulnerable to macro and enterprise risk.” Shares of Arista were up 2.3% in premarket trading, while Cisco was down about 1.6%.

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