The Devil is in the Details

Every so often I feel comfortable playing earnings. For me, GPRO was a no-brainer, since I wanted to be long heading into the holiday season–one way or another. Back in the old days of refining resurgence, I had to own the WNR. Last year, in light of soaring BDI rates, BALT was my play. And now, I am entirely convinced in the prospects for TRN.

But that isn’t my earnings play. It is a name that is little known, since it’s a freshly minted IPO.

Name of the company is Arista Networks: ticker ANET.

Stifel came out with this note this morning:

Arista Networks upgraded to Buy at Stifel; tgt $95  (81.25)

Stifel upgrades ANET to Buy from Hold and sets target price at $95 as checks show that co continues to notch up big wins with large financial services companies. Firm’s checks also show that the company has started to make inroads into the channel, which is helping Arista diversify beyond the financial services vertical into the enterprise market. Other highlights:

• Partnership with IBM and potential opportunity with VCE
• One of the biggest variables and focus areas for investors going forward will be gross margins

At 10x sales, this stock isn’t cheap. At the same time, compared to other high valuation plays, it’s rather low key. Sporting a growth rate of 65%, expected to exceed analyst expectations for the foreseeable future, one can make the argument that ANET should and could trade up to 14x, just like PANW.

I hate doing that, by the way. Rationalizing high valuation stocks by comparing it to even higher valuation stocks is a great way to blow yourself up. However, during bull markets, that’s how the game works. So, you play the stupid game until it ends, very simply.

Last quarter ANET smashed estimates by .22, posting eps of .35, with revenues of $137.9m, well ahead of consensus estimates of $125.6m. Furthermore, they offered upside guidance of $142-150m, compared to consensus of $134.1m. They are scheduled to report earnings on November 6th, after the market close.

I will be holding my position though earnings, hoping for the best.

Capital IQ EPS consensus: 0.28
Capital IQ Rev consensus: 148.20 mln