Analyst Note| Dan Romanoff, CPA |
We are lowering our fair value estimate for narrow-moat Citrix to $116 per share from $125 after the company reported solid results and provided guidance that was appreciably below our expectations. During his first earnings call in his second stint as interim CEO, Bob Calderoni’s message was that Citrix’s business is healthy with a robust underlying market, a good pipeline, strong and improving renewal rates, and good progress toward the firm’s transition to the cloud. As he sees it, Citrix suffered from poor forecasting, double counting of sales commissions, a sales channel that was not being compensated well-enough, and suggested that R&D spending that did not focus on growth would be excised. He noted Citrix is already implementing changes on some of these issues and will have more to say on it during the fourth quarter earnings call. Calderoni is confident the company’s issues are operational and fixable within a reasonably short period of time. All of this seems reasonable to us, but it is also reasonable to ask what is different this time for a company that has been restructuring and reprioritizing for six years now. We think upside from here even to our lower fair value estimate will be attractive to patient value investors but we view Citrix as a “show me” story that we would avoid until either more details are provided on the fourth quarter call or the company proves it can deliver on the formula Calderoni described above.