HomeMarket NewsExtreme Networks trades higher after UBS starts coverage with Buy

Extreme Networks trades higher after UBS starts coverage with Buy

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Extreme Networks headquarters in Silicon Valley

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UBS has initiated coverage on Extreme Networks (NASDAQ:EXTR) with a Buy rating and set a price target of $30.

The analysts believe that Extreme Networks’ strategic shift towards product unification and backward compatibility with Cisco gear will drive share gains, leading to at least 10% revenue growth in the next three years – 400-500 basis points faster than the industry average. UBS’s forecast is approximately 150 basis points faster than the current share price implies.

Furthermore, the analysts expect a shift towards software and improved supply chain costs to increase gross margins by nearly 400 basis points over the same period, resulting in a ~25% three-year EPS compound annual growth rate.

With Extreme Networks trading at approximately 14x the estimated CY24 earnings, which is one turn below the trailing three-year average, and limited risk to backlog following a recent revision, UBS believes that the recent announcement by Kroger to deploy Wi-Fi 6E access points presents a favorable risk-to-reward ratio of 2 to 1 over the next year.

The firm also notes that smaller adjacent markets such as SD-WAN, which support Extreme Networks’ revenue outlook, are growing faster than legacy markets, providing an additional tailwind for the company.

Seeking Alpha’s Quant Rating system gives EXTR a Strong Buy rating, consistently outperforming the market. The average rating from Seeking Alpha authors and Wall Street analysts is also Buy.

EXTR is up 2.12% in premarket trading on September 22, reaching $23.60.

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