Arista Networks (NYSE:ANET) shares added nearly 10% in pre-market trade on Tuesday after the communications-equipment company reported results and offered an outlook that outperformed estimates.
Moreover, Morgan Stanley upgraded its recommendation on the stock to Overweight, underscoring the results as indicative of sustained strength in the cloud sector.
“Valuation sensitivity has kept us on the sidelines, but we view ANET as the best way to play AI networking's eventual move to Ethernet. Q3 results point to continued strength in cloud, despite investor caution,” analysts wrote in an upgrade report.
For the third quarter results, adjusted earnings per share stood at $1.83, a notable increase compared to $1.25 year-over-year and surpassing the estimated $1.58.
Revenue for the third quarter amounted to $1.51 billion, marking a substantial 28% year-over-year growth and exceeding the consensus of $1.48 billion.
For the fourth quarter, the company forecasts revenue in the range of $1.50 billion to $1.55 billion, surpassing the estimated $1.47 billion. The adjusted gross margin is anticipated to be approximately 63%, and the adjusted operating margin is expected to be around 42%, exceeding the estimated 41.4%.
“The team continues to demonstrate strong discipline, working to normalize supply chain metrics while delivering incremental improvements to our 2023 outlook, which now calls for year-over-year revenue growth in excess of 33%,” CFO Ita Brennan said.
KeyBanc analysts raised the price target by $15 to $232 per share.
“We believe Arista remains well positioned to benefit from its cloud native solution set to gain share in Enterprise via unique products such as AVD (Arista Validated Design),” analysts said.
“[We] view the Company’s increased range of revenue tied to C&AI up 5-6 points from the prior range for Cloud Titans (from 35-39% of revenue LT to 40-45%) as a bullish indication of Arista’s prospects in Cloud & AI (over and above OCI’s contribution here), supporting our Overweight rating on ANET shares.”