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Stock Analyst Update

Citrix Is Getting Its House in Order

Although challenges lie ahead, the firm is starting to turn the corner.


What Happened?
After Wednesday's market close, networking-software company Citrix Systems (CTXS) released quarterly earnings that edged out analyst expectations. Cash earnings of $0.16 per share topped First Call estimates by a penny, while quarterly revenue growth of 8.7% surpassed earlier guidance calling for the midsingle digits. Management also forecast annual growth rates for this year--revenue and earnings will increase in the low 20s and high 20s, respectively. Following the news, investors sent Citrix stock up 12% in after-hours trading.

What It Means for Investors
Single-digit growth rates will not inspire shareholders to do backflips, but Citrix's outlook has significantly improved compared with its June quarter, when we said
that shareholders should hibernate for a couple of quarters. The latest earnings release indicates the company is reversing some of the damage done in past year. In particular, days' sales outstanding (DSO) came in at 27, a sharp decrease from 42 in the third quarter. DSO measures how quickly the company can convert accounts receivable into cash. Also, Citrix's balance sheet is getting stronger--the company rests on $849 million in cash and securities (compared with $803 million at the end of the third quarter). As for valuation, the stock looks reasonable, if not cheap. Its price/earnings ratio is 1.8 times its forecast earnings growth rate, roughly in line with the S&P 500 average.

George Nichols does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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