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Bull of the Day: Citrix Systems (CTXS)

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Citrix Systems (CTXS) is a leading provider of virtualization, networking and cloud computing solutions to more than 400,000 organizations worldwide. Its products include XenApp, which runs the business logic of applications on a central server, and XenServer, an enterprise-class platform for managing server virtualization in the datacenter as a pool of computing and storage resources.

Their Citrix Workspace Cloud delivers secure access to apps, desktops, data and services from any device, over any network and cloud.

And Citrix is also well known as the provider of GoTo Meeting services and applications. In a November announcement about the company's strategic restructuring, management revealed that they plan to spin-off the GoTo suite.

Citrix Updates on Operations Review

Here were the headline updates from November 17...

Increasing focus on core enterprise strategy of secure and reliable app and data delivery

Providing FY16 GAAP diluted EPS outlook of $2.64 - $2.82; non-GAAP diluted EPS outlook of $4.40 - $4.50

Targeting 17 percent GAAP operating margin for 2016; at least 28 percent non-GAAP operating margin for 2016; targeting at least 30 percent non-GAAP operating margin for 2017

Announces plans to spin off GoTo businesses into separate company

In response to this update, analysts raised estimates yet again for this year and next. This analyst action pushed the stock back to the Zacks #1 Rank. And it didn't hurt that the company has delivered an earnings beat for several consecutive quarters, averaging a 22% positive surprise for the last four reports.

In fact, CTXS became a Zacks #1 -- for the first time in several quarters -- in early July when it was trading under $69. From there to the climb above $82 in late October, the #1 Rank was reiterated at least twice more as analysts either revised estimates upward and/or the company delivered another beat as they did on October 21.

Current Structure

Citrix operates in four reportable segments as follows:

•License Updates and Maintenance (45.1% of the total revenue in 2014): This segment consists of fees related to Citrix's Subscription Advantage program that are recognized ratably over the term of the contract, which is typically 12 to 24 months. Subscription Advantage is an annual-renewable program that provides subscribers with automatic delivery of unspecified software upgrades, enhancements and maintenance releases if they become available during the term of the subscription.

•Product and Licenses (28.6%): This segment primarily consists of fees related to the licensing of Citrix's major products including Desktop Solutions products, Datacenter and Cloud products.

•Software as a Service (20.7%): This segment consists primarily of fees related to online service agreements, which are recognized ratably over the contract term.

•Professional Services (5.6%): This segment includes fees from technical support services, which are recognized ratably over the contract term as well as fees from product training and certification and consulting services.

Reinventing Citrix

You may be surprised to know that the company was started in 1989 as a software company. Here's their description of technology landscape that has inspired them to continually adapt and innovate...

Over the past decade, a number of technology trends including cloud, mobile, and now the evolution of software-defined environments are changing the role of IT in business. Networks, desktops, data, and even in-person meetings have all been decoupled from physical locations and transformed into fully digital mobile workspaces that provide complete business mobility. Citrix is leading the transition to software-defining the workplace, reinventing how people connect with ideas and how processes and facilities are designed to enable new ways for businesses and people to work.

Elliot Likes CTXS

While CTXS shares are widely owned by many large institutional investors, one smaller hedge fund has been accumulating shares rapidly of late. In the third quarter of this year, the $5 billion Elliot Associates bought nearly 4.4 million shares (mostly in July) to bring their haul to 5.87 million as of September 30.

And they were found adding to that stake in November based on a November 30 SEC 13D filing, after the company's strategic update. It seems they are on board for the changes to come.

While this hedge fund was quietly accumulating their first big stake in July, the Zacks Rank told you why as the earnings outlook improved. Most institutional fund managers have an outlook for their investments that spans beyond a quarter or two, but we may not know when Elliot sells.

Thus, your main guide about the direction of CTXS shares should remain the earnings momentum as indicated by the Zacks Rank.

Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money (FTM) portfolio.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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