F5 Networks Inc Valuation – February 2019 $FFIV

Company Profile (excerpt from Reuters): F5 Networks, Inc., incorporated on February 26, 1996, is a developer and provider of software defined application services. The Company is engaged in the development, marketing and sale of application delivery networking products that optimize the security, performance and availability of network applications, servers and storage systems. The Company’s geographical segments include the Americas (primarily the United States); Europe, the Middle East, and Africa (EMEA); Japan, and the Asia Pacific region (APAC). The Company’s Traffic Management Operating System (TMOS) based offerings include software products for local and global traffic management, network and application security, access management, Web acceleration and various network and application services. These products are available as modules that can run individually or as part of an integrated solution on the Company’s purpose-built BIG-IP appliances and VIPRION chassis-based hardware, or as software-only Virtual Editions. The Company also offers distributed denial-of-service (DDoS) protection, application security and other application services by subscription on its cloud-based Silverline platform.


Downloadable PDF version of this valuation:

ModernGraham Valuation of FFIV – February 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $9,644,485,833 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.55 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 192.14% Pass
6. Moderate PEmg Ratio PEmg < 20 20.73 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.92 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.55 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass


Stage 2: Determination of Intrinsic Value

EPSmg $7.75
MG Growth Estimate 13.19%
MG Value $270.35
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $112.39
MG Value based on 0% Growth $65.89
Market Implied Growth Rate 6.12%
Current Price $160.72
% of Intrinsic Value 59.45%

F5 Networks, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $4.12 in 2015 to an estimated $7.75 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 6.12% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into F5 Networks, Inc. revealed the company was trading above its Graham Number of $70.47. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 20.73, which was below the industry average of 56.55, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $2.26.

F5 Networks, Inc. performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $2.26
Graham Number $70.47
PEmg 20.73
Current Ratio 1.55
PB Ratio 6.92
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $1,619,636,000
Total Current Liabilities $1,047,690,000
Long-Term Debt $0
Total Assets $2,891,896,000
Intangible Assets $555,965,000
Total Liabilities $1,482,708,000
Shares Outstanding (Diluted Average) 60,645,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $10.34
Sep2018 $7.32
Sep2017 $6.50
Sep2016 $5.38
Sep2015 $5.03
Sep2014 $4.09
Sep2013 $3.50
Sep2012 $3.45
Sep2011 $2.96
Sep2010 $1.86
Sep2009 $1.14
Sep2008 $0.89
Sep2007 $0.90
Sep2006 $0.40
Sep2005 $0.61
Sep2004 $0.26
Sep2003 $0.02
Sep2002 -$0.17
Sep2001 -$0.68
Sep2000 $0.30
Sep1999 -$0.21

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.75
Sep2018 $6.19
Sep2017 $5.39
Sep2016 $4.65
Sep2015 $4.12
Sep2014 $3.51
Sep2013 $3.00
Sep2012 $2.52
Sep2011 $1.89
Sep2010 $1.25
Sep2009 $0.89
Sep2008 $0.71
Sep2007 $0.56
Sep2006 $0.34
Sep2005 $0.21
Sep2004 -$0.01
Sep2003 -$0.15

Recommended Reading:

Other ModernGraham posts about the company

F5 Networks Inc Valuation – April 2018 $FFIV
F5 Networks Inc Valuation – July 2016 $FFIV
F5 Networks Inc. Annual Valuation – 2015 $FFIV
16 Companies in the Spotlight this Week – 4/19/14
F5 Networks (FFIV) Annual Valuation – 2014

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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