Bear of the Day: Aruba Networks (ARUN)

  • Karpal memorial service non-political event, says DAP inviting Najib, Muhyiddin
    Karpal memorial service non-political event, says DAP inviting Najib, Muhyiddin

    DAP today extended an invitation to both the prime minister and his deputy to be guests of honour at a memorial service for the late Bukit Gelugor MP Karpal Singh tomorrow to prove that the event is non-political. Gelang Patah MP and party adviser Lim Kit Siang (pic) said the invitation has been extended to Datuk Seri Najib Razak and Tan Sri... …

  • Unidentified material washed ashore near Western Australia town, possible MH370 debris
    Unidentified material washed ashore near Western Australia town, possible MH370 debris

    Police in Western Australia have attended to a report of material washed ashore 10 kilometres east of Augusta and have secured the material, the Joint Agency Coordination Centre in charge of the search for Malaysia Airlines flight MH370 in the southern Indian Ocean said in a statement. The Australian Transport Safety Bureau (ATSB) is examining... …

  • Extremists have no place in Malaysian society, says Khairy – Bernama
    Extremists have no place in Malaysian society, says Khairy – Bernama

    Malaysia's Youth and Sports Minister Khairy Jamaluddin (pic) has denounced political and religious extremists in Malaysia, saying they did not belong "in our society". Addressing more than 800 Malaysian university students who had come from all parts of Australia to attend the Second Malaysian Summit of Australia (Masa) in Melbourne, he... …

  • Selangor MCA reveals receipts for 'illegal water sales'

    Selangor MCA has produced a quotation and receipts from a private water-tanker operator, purportedly revealing that he had sold water to the industrial community at prices up to 23 times more than what he had paid the water concessionaire. A document distributed to the media shows that the operator had bought water on March 4 from Syarikat Bekalan Air Selangor Sdn. Bhd (Syabas) at RM2.07 per 1,000 litres, but was sold to industrial users at RM48.48. Selangor MCA information bureau deputy …

  • Cops will act if May 1 rally 'threatens public order'

    The police will act against the May 1 anti-GST rally if it is found to threaten public order, Kuala Lumpur Criminal Investigations Department (CID) deputy chief ACP Khairi Ahrasa said today. "So far, our actions are to ensure peace, but if there is a threat against public order, we will take action," he told a press conference at the Kuala Lumpur police headquarters. Asked whether the police have identified individuals who will be the main personalities behind the rally, like how they did for …

  • PKR forms panel to help students with yearly scholarship heartbreaks
    PKR forms panel to help students with yearly scholarship heartbreaks

    PETALING JAYA, April 23 -- Following the annual controversy over the allocation of federal scholarships, PKR today announced a special panel to help deserving secondary school leavers appeal... …

Wireless-network equipment maker Aruba Networks, Inc. (ARUN) has taken it on the chin recently. The company delivered disappointing third quarter results and warned of increased competition from its 'largest competitor' (i.e., Cisco (CSCO)).

This prompted analysts to revise their estimates significantly lower for both 2013 and 2014, sending the stock to a Zacks Rank #5 (Strong Sell). Despite the big selloff, shares still trade at a significant premium to the industry on a forward P/E basis. Investors should consider avoiding Aruba Networks at least until its earnings momentum turns around.

Aruba Networks is a wireless-network equipment maker. It was founded in 2002 and has a market cap of $1.5 billion.

Earnings Miss

Aruba reported disappointing results for its fiscal 2013 third quarter on May 16. Earnings per share came in at a loss of 9 cents, well below the Zacks Consensus Estimate, which called for a loss of 1 cent.

Revenue climbed 12% to $147.1 million, which was also below the consensus of $152.0 million. Its gross profit margin actually improved slightly to 70.1% of total revenue. However, total operating expenses as a percentage of revenue increased 422 points to 71.8%.

Estimates Plummet

Management lowered its Q4 guidance following the Q3 earnings miss. In the conference call, CEO Dominic Orr warned of a 'heightened level of competition and bundling strategy from our largest competitor (Cisco).'

This prompted earnings analysts to revise their estimates significantly lower for Aruba, both for 2013 and 2014. This sent shares to a Zacks Rank #5 (Strong Sell).

The Zacks Consensus Estimate for 2013 is now $0.10, down from $0.23 just 30 days ago. And the 2014 consensus has plunged from $0.48 to $0.14 over the same period. You can see this steep drop in the company's 'Price & Consensus' chart:

The Zacks Industry Rank isn't very bullish for Aruba either. The 'Wireless Equipment' industry ranks in the bottom 17% of all industries that Zacks ranks.

Premium Valuation

Although shares of ARUN are down more than -40% since the company's first quarter earnings release, the stock still trades at a premium valuation. Shares currently trade at 49x 12-month forward earnings, well ahead of the industry median of 19x.

The Bottom Line

With increased competition from a major tech giant, negative earnings momentum and premium valuation, investors should consider avoiding Aruba Networks for now.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

ARUBA NETWORKS (ARUN): Free Stock Analysis Report

CISCO SYSTEMS (CSCO): Free Stock Analysis Report

Zacks Investment Research



More From Zacks.com

Follow @YahooMalaysia on LINE for daily news updates.

Comments on Yahoo pages are subject to our link to Comments Guidelines. You are responsible for any content that you post. Yahoo is not responsible or liable in any way for comments posted by its users. Yahoo does not in any way endorse or support comments made by its users.

  • MH370 passenger’s partner tells of strange email from sacked Fox officer The Malaysian Insider
    MH370 passenger’s partner tells of strange email from sacked Fox officer

    The partner of an American passenger aboard the missing Malaysia Airlines flight MH370 has spoken about how a Fox executive who was recently sacked by the news station had contacted her offering to raise funds on her behalf. Sarah Bajc, whose partner Philip Wood is among the 239 people on board the missing plane, told the Sydney Morning Herald... …

  • Dr Ling’s son chose wine over woman, court hears The Malaysian Insider
    Dr Ling’s son chose wine over woman, court hears

    The son of former MCA president Tun Dr Ling Liong Sik today reached an out of court settlement with his ex-girlfriend in a breach of contract suit over seven properties registered under their joint names. Ling Hee Leong and businesswoman Teh Chee Yen agreed to settle out of court after he took the stand briefly and testified that he had chosen... …

  • MB: Only 29 days of water left in Selangor Malaysiakini

    Although heavy rain led to flash floods in parts of the Klang Valley yesterday, the Selangor government has said that taps will run completely dry in 29 days if rationing is not continued. "For now, we must continue with rationing as the level at the main dam, the Sungai Selangor dam, is below the critical level and can only last 29 days if rationing is not conducted," Menteri Besar Abdul Khalid Ibrahim said in a statement.   "We really hope the rakyat understands this situation and supports …