Networking infrastructure specialist Extreme Networks Inc. (NASDAQ: EXTR) racked up a price gain of 15.86% in May and another 16.84% so far in June.
It’s posted a three-month gain of 36.99%.
Shares gapped up 3.75% on June 12, in double average trading volume, after boutique investment bank Rosenblatt Securities boosted its price target. A glance at MarketBeat’s Extreme Networks analyst ratings shows Rosenblatt increasing its target to $30 from $23, a premium of nearly 25% above the stock’s June 12 closing price of $24.07.
Extreme Networks pretty much exemplifies the description “small but mighty.” The networking gear maker long had its sights on larger, better-known rivals Cisco Systems Inc. (NASDAQ: CSCO) and Hewlett Packard Enterprise Co. (NYSE: HPE). The company has succeeded in growing faster than either of those networking solutions providers in recent quarters.
Extreme’s three-year revenue growth rate is 10%; its earnings growth rate is 110%. Much of that huge earnings increase is due to triple-digit quarterly growth in 2021.
Revenue Growth Accelerated
Although sustaining triple-digit growth rates indefinitely is impossible, Extreme’s top-and-bottom-line growth remains strong. Revenue growth accelerated in the past two quarters. During that time, earnings growth rebounded after two-quarters of declines in mid-2022.
A glance at Extreme Networks earnings data compiled by MarketBeat shows the company has a history of beating analysts’ views, going back to April 2021.
Extreme Networks develops connectivity technologies for enterprise users, including businesses, government entities and universities.
Its solutions range from wired and wireless networking to cloud-based management systems.
Big-Name Customers
Customers include the Social Security Administration, the University of North Carolina, the New York Stock Exchange, Vanguard funds, the Coca-Cola Company (NYSE: KO), and FedEx Corp. (NYSE: FDX). In the world of sports, it boasts Major League Baseball, the National Football League, and the National Hockey League among its customers.
In a May investor presentation, Extreme notes that its subscription-booking growth drivers include cloud management; renewals, migrations, additional subscription licenses; and WAN Edge.
The latter refers to technologies that securely connect networks distributed among several remote locations. It allows for more efficient site management and application delivery.
The AI Angle
If you were wondering, yes, there is an AI angle to Extreme Networks’ rapid rise. Its ExtremeCloud IQ CoPilot uses machine learning and AI to provide customer data insights. According to the company, these insights “enable you to see, verify, and trust the data behind every recommendation.”
CoPilot alerts customers when it identifies a problem, explains what it sees, and offers the best solution.
Like every other company that relies on tangible goods, Extreme suffered through supply-chain problems, which are now mainly in the rear-view mirror.
In the fiscal third-quarter earnings release issued on April 26, CEO Ed Myercord said, “We believe the improving supply chain, F.
Earnings Expected To Double
He added that the company expects earnings to more than double year-over-year.
The company wraps up fiscal 2023 in this current quarter, which ends in June.
For the quarter, analysts expect earnings of $0.21 a share on revenue of $343.37 million. Those would be year-over-year increases of 40% and 23%, respectively.
Pullback Could Offer Buy Opportunity
Extreme Networks analyst ratings reveal a consensus of “moderate-buy” with a price target of $22, a downside of 8.60%. Given the stock’s rapid increase in recent months, a pullback seems likely sooner rather than later. That could offer a new buy opportunity, as the stock is currently extended beyond its most recent base buy point above $21.03.
As a company that’s in fast growth mode, Extreme does not pay a dividend. However, it does have a share repurchase program, and in the second quarter, it repurchased 1.35 million shares for $25 million.
In May 2022, the company OK’d an increase to its share repurchase authorization to $200 million over three years, beginning in July 2022.
