Rising Margins Boost Extreme Networks

10/31/2017 5:00 am EST


Tom Bishop

Founder, BI Research

Extreme Networks (EXTR) delivers high performance switching and routing products for data centers and core to edge networks, wired or wireless LAN access and unified network management and control, says Tom Bishop, editor of BI Research.

Its award winning solutions include software defined networking, network analytics, cloud and high density Wi-Fi, identity access management and security.

Its services are provided in more than 80 countries to organizations large and small including some of the leading names in business, hospitality, retail, transportation and logistics, education, government, healthcare and manufacturing.

Customers include Walmart (WMT), CVS (CVS), Lowe’s (LOW), Wrigley Field, the Patriots and Jets/Giants stadiums (and many others), Hilton (HLT), Marriott (MAR), Coca Cola (KO), Colgate (CL), the Marines, etc.


The company believes it is the “only player in the industry to be exclusively focused on being a leading provider of end-to-end, wired and wireless software driven networking solutions” and “the only networking vendor to provide 100% in-sourced technical assistance with over 90% first person resolution.”

As expected, in early October Extreme announced that it has acquired the Switching, Routing and Analytics data center business from Brocade Communications (BRCD) for $55 million.

Extreme also said that it “continues to anticipate the transaction will be accretive to cash flow and earnings for fiscal year 2018, which began July 1st, and expects to generate over $230 million in annualized revenue from the acquired assets.”

This will take Extreme over the $1 billion in revenue threshold, giving it a critical mass and the resources to go toe-to-toe with the largest players in the industry.

Last year the company implemented 26 different gross margins initiatives that helped it reach gross margins of 54.3% in fiscal 2016-17.

While gross margins could take a short term hit as the new lower margined acquisitions come on line, the company believes there is even more room to improve in fiscal 2018.  Estimates have settled in at $0.65 (and $0.14 for the third quarter), adjusted for non-recurring acquisition costs, etc.

And get a load of this: EXTR’s Value Line rank is 1, the Zack rank is is 1, and Investors Business Daily composite rank is 99.  It also ranks a "buy" on our proprietary ranking system. It doesn't get no better than that.

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