We downgrade our recommendation on Citrix Systems Inc. (CTXS) to Neutral based on its current valuation. Citrix is currently trading at the high-end of its 52-week price range.
The stock price has moved by a whopping 77% in the past year. At present, Citrix is trading at significantly higher multiples compared with the S&P 500 average with respect to several valuation metrics.
Citrix is benefiting from the growing trend toward globalization and the virtual office. In search of growth, companies continue to enter markets throughout the world. Virtualization and cloud computing have become the most effective tool to reduce costs as enterprises grow in size. Instead of installing their own virtualization and data center set up, the corporate bodies are now sharing cloud computing platform of dedicated providers like Citrix.
The desktop virtualization market is expected to accelerate further in 2011. While server virtualization currently has an addressable market size of approximately 35 million servers’ worldwide, desktop virtualization has the potential to affect more than 600 million desktop users in corporate environments alone.
In addition to being the market leader in the desktop virtualization segment, Citrix is slowing taking way market share from its closest rival VMware Inc. (VMW) in the server virtualization segment.
Citrix is concentrating on three broad markets such as Desktop virtualization, Web Collaboration & Cloud Computing, and Application Networking. As desktop virtualization becomes top priority for any IT set-up, Citrix is introducing newer innovative products that will facilitate business flexibility, security and centralized management system. Management has provided a strong financial outlook for 2011.
However, we believe that these positive factors are already reflected in the current valuation. Its high valuation provides virtually no room for above market gain anytime soon.
CITRIX SYS INC (CTXS): Free Stock Analysis Report
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