BMC Bmc Software, Inc.

A leading provider of virtualization, networking and cloud computing solutions, Citrix Systems Inc. (CTXS) is slated to release its second quarter 2011 results on Wednesday, July 27, after the closing bell. The current Zacks Consensus Estimate for the third quarter is pegged at 46 cents per share, representing an annualized growth of 47.15%.

With respect to earnings surprises over the trailing four quarters, Citrixhas outperformed the Zacks Consensus Estimate in three of the last four quarters. The average earnings surprise was a positive 14.43%.

Second Quarter Recap

On April 27, 2011, Citrix reported its first quarter 2011 financial results. Quarterly net revenue was $490.9 million, up 18% year over year and exceeded the Zacks Consensus Estimate of $475 million. GAAP net income was $73.5 million or 38 cents per share compared with a net income of $47.3 million or 25 cents per share in the prior-year quarter. However, quarterly adjusted EPS of 41 cents was significantly above the Zacks Consensus EPS estimate of 32 cents.

Gross margin in the first quarter of 2011 was 88.3% compared with 88.2% in the year-ago quarter. Operating expenses in the reported quarter were approximately $352.6 million compared with $313.5 million in the prior-year quarter. However, quarterly operating margin was 16.5% compared with 12.6% in the prior-year quarter.

Agreement of Estimate Revisions

For the second and third quarter of fiscal 2011, over the last 30 days, out of the 13 analysts covering the stock, only 1 analyst decreased the EPS estimate while none moved in the opposite direction. Similarly, for fiscal 2011 and 2012,  over the last 30 days, out of the 13 analysts covering the stock, only 1 analyst slashed the EPS estimate while none increased their EPS estimates.

Magnitude of Estimate Revisions

In the last 30 days, the Zacks Consensus Estimates for the second and third quarter of 2011 were in line with the current estimate of 46 cents. Likewise, for fiscal 2011, the current estimate was just a penny short of the Zacks Consensus Estimates of $2.06. Similarly, for fiscal 2012, during the last 30 days, the current estimate was 3 cents shy of the Zacks Consensus Estimates of $2.38.

Earning Surprises

In the previous quarter, Citrix reported EPS of 41 cents, which was well above the Zacks Consensus Estimate of 32 cents. The current Zacks Consensus Estimates for the second quarter and for the upcoming quarter contain 2.17% and 3.85% downside potentials, (essentially a proxy for future earnings surprises), respectively. Similarly, for fiscal 2011 and 2012, the Zacks Consensus Estimate downside potentials are 2.93% and 1.70%, respectively.

Our Recommendation

Continuous revenue growth, strong product demand, improved financial outlook will act as positive catalyst for the company going forward.

However, Citrix is currently trading at the high-end of its 52-week price range. The stock price has moved by a whopping 94% in the past one year. Moreover, stiff competition from BMC Software, Inc. (BMC) and Autodesk, Inc. (ADSK) will further act as headwinds for the company going forward.

We, thus, maintain our long-term Neutral recommendation for Citrix Systems Inc. Currently, Citrix Systems Inc. has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

 
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