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: Arista stock jumps on strong results: Networking company ‘a little oasis’ amid talk of a recession

Arista Networks Inc. shares surged Tuesday toward a three-month high, lifted by the networking company’s strong second-quarter results and robust guidance.

The company’s stock gained 2.2% in morning trading, after ending Monday’s session up 0.8% at $117.61.

Arista ANET, +1.39% reported late Monday second-quarter net income of $299.1 million, or 94 cents a share, compared with $196.9 million, or 62 cents a share in the year-ago quarter. Adjusted earnings were $1.08 a share, compared with 68 cents a share in the same period last year.

Sales were $1.052 billion, marking the company’s first billion dollar revenue quarter, compared with $707.3 million in the prior year’s quarter. Analysts tracked by FactSet had forecast revenue of $979 million and earnings of 92 cents a share.

See Now: Arista Networks shares gain on sales, earnings beat and strong guidance

Speaking during a conference call to discuss the results on Monday, Arista Networks CEO Jayshree Ullal said that despite all the talk of a recession, she would classify the company’s quarter, and much of this year as “micro momentum.” Ullal, who acknowledged that Arista is not a bellwether for a macro recession, described the company as “a little oasis” for both enterprise and cloud in terms of its execution.

KeyBanc Capital Markets analyst Thomas Blakey pointed to Arista’s strength in cloud networking and continued share gains in enterprise.

“Management commented that cloud visibility remains strong, providing comfort for the remainder of CY22, with likely recalibrated growth expectations from the Street out to CY23,” he wrote.

Blakey reiterated its overweight rating and $170 price target for Arista Networks.

Arista, which has earned a reputation for robust growth rates, gave strong third -quarter guidance, predicting revenue of $1.025 billion to $1.075 billion, while analysts surveyed by FactSet had forecast sales of $996 million.

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“Arista once again demonstrated the upside we were expecting as 2Q22 revenue and 3Q22 revenue outlook came in ahead of both JPMe and consensus forecasts heading into the print, led by solid demand trends across all customer verticals, and in particular cloud,” wrote J.P. Morgan analyst Samik Chatterjee, in a note released on Tuesday.

J.P. Morgan reiterated its overweight rating and $160 price target for Arista.

Raymond James analyst Simon Leopold described Arista’s second-quarter results as an “oasis, not a mirage.” In particular, Leopold pointed to Arista’s rally last week following healthy spending reports from cloud titans Meta Platforms Inc. META, +0.34% and Microsoft Corp. MSFT, -1.14%.

“The most notable event was Meta raising the midpoint of its capex forecast,” he wrote. “We believe many on the Street anticipated the operators would reduce budgets in light of the macro; they have not.”

Set against this backdrop Arista “appears poised to blow past its original 30% growth forecast,” according to Leopold.

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Raymond James maintained its market perform rating for Arista.

Arista’s Chief Operating Officer Anshul Sadana said on the earnings call that Microsoft and Meta are each expected to account for over 10% of the company’s revenue for the full year.

Arista Networks has also side-stepped the supply-chain problems that have beset networking bellwether Cisco Systems Inc. CSCO, -0.13%. However, Arista CFO Ita Brennan described the supply environment as challenging. Citing the uncertainty around supply, Arista did not provide fourth-quarter guidance.

“We get so many surprises on supply – there’s no point getting ahead of ourselves,” said CEO Ullal. “One quarter at a time is still our philosophy.”

Arista shares have fallen 16.4% this year, compared with the S&P 500 index’s SPX, -0.09% year-to-date decline of 14.0%.

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