On Thursday, Extreme Networks (NASDAQ:EXTR) received an upgrade from Neutral to Buy, with its price target increased to $17.00 from $15.00 by a Rosenblatt securities firm. The decision comes after the firm previously downgraded the stock due to a lack of immediate growth drivers.
The firm cites several reasons for the upgrade, including the belief that the third quarter of fiscal year 2024, which ended in March, represented a low point for the company's revenues and margins. Additionally, it was noted that competitors such as Cisco (NASDAQ:CSCO, Neutral), Juniper (JNPR, Neutral), and HPE are facing execution challenges in the Enterprise Networking space.
Extreme Networks is recognized for its innovative products, such as WiFi 6E and 7, Security solutions including Cloud NAC and Zero-Trust Network Access, and AI features like AI Expert. These offerings, along with a business model that emphasizes Software as a Service (SaaS) and recurring revenues, are expected to drive the company's growth.
The firm anticipates that Extreme Networks' revenues will see sequential growth, including in the first quarter of fiscal year 2025, as the company resolves its channel inventory issues. Despite a soft macroeconomic environment, particularly in Europe, there is an expectation of gradual recovery.
Confidence is expressed that Extreme Networks will be able to achieve over 10% revenue growth in the fiscal year 2026, with quarterly sales normalizing to a run rate exceeding $300 million.
The recent decline in the stock's price since the previous downgrade also contributed to the revised outlook. The new price target of $17 is based on a 15 times multiple of the forecasted earnings per share for fiscal year 2026, making the stock an attractive option for investors, according to the firm.
InvestingPro Insights
The recent upgrade of Extreme Networks (NASDAQ:EXTR) by a Rosenblatt securities firm is echoed by some interesting financial metrics and InvestingPro Tips. With a market capitalization of $1.47 billion and a strong gross profit margin of 59.67% in the last twelve months as of Q3 2024, Extreme Networks showcases a solid foundation in profitability. Furthermore, the company's aggressive share buyback strategy and high shareholder yield are positive signals for investors looking for companies with proactive management.
While analysts predict a sales decline in the current year, they also anticipate the company will turn profitable this year. This aligns with the firm's confidence in revenue growth and normalization of quarterly sales for Extreme Networks. However, it's worth noting the stock's significant price drop over the last six months, with a 33.04% decrease. Despite this, the company's current share price of $11.20 is still below the InvestingPro Fair Value estimate of $13.10, suggesting potential upside for investors.
For those considering Extreme Networks as an investment, there are additional InvestingPro Tips available that could provide further insights, including an evaluation of the company's debt level and valuation multiples. Interested readers can explore these tips and more with a subscription to InvestingPro. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription and gain access to a total of 11 InvestingPro Tips that could help inform your investment decisions.
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