Citrix Systems Inc.
(CTXS), a leading provider of virtualization, networking and cloud computing solutions, will declare its first quarter 2010 financial results on April 21 after the market closes. The virtualization market is still reeling under the recession. The broader virtualization market has taken a hit due to the economic downturn as firms tighten their spending on server hardware.
Nevertheless, we believe the virtualization market will flourish in the long run with desktop virtualization as its central point. Several enterprises are likely to opt for virtualization solutions as a cost effective method to reduce the amount of server and storage hardware within their set-up. Citrix is benefiting from the trend toward globalization and the virtual office.
Estimate Revisions Trend
Estimate revisions trend remains very much static since none of the 12 analysts covering the stock changes their estimates in last 30 days for both the first quarter 2010 and full fiscal 2010.
Currently, the Zacks Consensus Estimate for the first quarter 2010 earnings is 28 cents per share, which would be a substantial improvement of 62.8% over the prior-year quarter. However, the current Zacks Consensus Estimate of $1.39 per share for full fiscal 2010 earnings indicates a modest improvement of 2.9% year-over-year.
Given the static nature of estimate revisions trend, the Zacks Consensus Estimate remains the same in the last 30 days for the first quarter 2010 but decreased by 1 cent for the full fiscal 2010 during the same period.
With respect to earnings surprises, the company’s fairly good track record is not expected to hold in the coming quarters. Citrix produced an impressive average earnings surprise of 20.7% in the last four quarters, which means that it beat the Zacks Consensus Estimate by that amount over the last year.
The current Zacks Consensus Estimate of 28 cents for the first quarter 2010 contains a downside potential (essentially a proxy for future earnings surprises) of 10.7%. For full fiscal 2010 earnings estimate, there also exists a downside potential of 4.3%.
Our Recommendation
The desktop virtualization market is expected to accelerate further in 2010 and has the potential to impact more than 600 million desktop users in corporate environments alone. Despite this, global recession and the uncertainty about future economic conditions could negatively impact Citrix’s current and prospective customers and may result in delays or reductions in technology purchases. We thus maintain a Neutral recommendation for Citrix, which means the stock will perform mostly in line with the broader market.

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