Arista Networks Stock Already Reflects Bright Growth Prospects, Morgan Stanley Says In Downgrade

Checks indicate Arista Networks Inc ANET should easily meet expectations in the current quarter and could continue to gain share going ahead, but its stock already reflects these positives following a recent rebound, according to Morgan Stanley.

The Analyst

James Faucette downgraded Arista Networks from Overweight to Equal-Weight and raised the price target from $300 to $330.

The Thesis

Investors are now more confident about sustained growth in Arista Networks’ Cloud Titans vertical, Faucette said in the Tuesday downgrade note. (See the analyst's track record here.) 

This has resulted in the stock appreciating 53 percent year-to-date, he said. Following this rebound, the valuation implies a more balanced risk-reward over the next 12 months, Faucette said.

Reseller checks indicate that the company’s campus products are tracking ahead of plan, with year-on-year growth rates in the high 20 percent, according to Morgan Stanley. While Arista continues to perform well in financial service, health care and manufacturing data centers, it has solid potential to expand, Faucette said. 

Reseller commentary also indicates that strong overall buying and a healthy demand environment could lead to growth in networking spend in 2019, with campus switching and wireless being the main drivers, the analyst said. 

Any upside to Arista's share price going ahead will likely be driven by its new campus networking business, the analyst said.

Estimates are building in reasonable growth expectations for this business, which could take five to seven years to reach its long-term revenue target of $1 billion, and contribute around $200 million in revenue in its first year, according to Morgan Stanley. 

Price Action

Arista Networks shares were down 2.48 percent at $319.58 at the time of publication Tuesday. 

Related Links:

Benzinga's Top Upgrades, Downgrades For April 23, 2019

Arista Networks Q4 Earnings Preview