Jankowski lowered her 12-month price target to $58 per share from $73 based on several risks to estimates. Goldman Sachs estimates calendar year 2016 revenues of $991 million versus consensus estimates of $1.025 billion and non-GAAP earnings per share of $2.32 instead of the consensus $2.49.
Jankowski cites several reasons for the downgrade. Arista is facing near term deceleration in cloud capex growth, which could be exacerbated by the migration to 25- and 50-Gb/s products and services. Jankowski wrote that the top six cloud providers’ capex had missed analysts’ expectations by 13 percent in the third quarter and was down 5 percent year-over-year.
Other factors that could impact Arista include weak enterprise demand, based on recent “multiple misses” by other companies this earnings season, and increased competition in the data center switch market. Jankowski also sees risk from Arista’s ongoing court battle with Cisco.
“Looking into 2016, we see more competition from Juniper as a new entrant in the 40G/100G leaf/spine segment, as well as higher white box adoption and multiple 25G/50G competitors, including Cisco, HP, Brocade, and Juniper,” Jankowski wrote. “Further, Arista is currently ‘over-earning’ relative to its target model. We expect gross/operating margins to decline by 1 percent to 3 percent over the next two years as Arista faces more competition and invests in product and market expansion.”
In early afternoon trading, Arista’s shares were down $2.71 to $61.81.