On Monday, Lake Street Capital Markets adjusted its outlook on Extreme Networks (NASDAQ:EXTR), reducing the price target to $13 from $17, while maintaining a Hold rating on the stock.
The revision follows the company's third-quarter revenue guidance, which significantly fell short of market expectations. Extreme Networks projected a midpoint revenue of $205 million, a stark contrast to the consensus estimate of $321 million.
The shortfall is attributed to lengthier sales cycles for both switching and wireless products in North America. The company anticipates that a reduction in channel inventory by $40 million to $50 million for the third quarter ending in March will lead to a more balanced dynamic between sell-through to end customers and sell-in to distribution channels.
This inventory adjustment suggests that if channel inventories were at normal levels, third-quarter revenue could be higher by the same $40 million to $50 million range.
Despite the near-term challenges, Lake Street Capital Markets expects year-over-year growth to resume in the second half of fiscal year 2025. However, the firm has revised its estimates downward in response to current macroeconomic headwinds that are impacting the company's top-line growth. This cautious stance reflects the broader market sentiment as companies navigate through economic uncertainties.
InvestingPro Insights
Extreme Networks' (NASDAQ:EXTR) recent financial performance and market activity provide additional context for investors following Lake Street Capital Markets' revised outlook. With a market capitalization of approximately $1.49 billion and a trailing P/E ratio of 16.14, the company presents an interesting valuation profile. Notably, Extreme Networks has a PEG ratio of 0.28 for the last twelve months as of Q2 2024, which could suggest that its earnings growth is potentially undervalued relative to its peers.
InvestingPro Tips highlight that the company has a perfect Piotroski Score of 9, indicating strong financial health, and that management has been aggressively buying back shares, reflecting confidence in the company's value. Additionally, the stock has experienced significant price volatility, with a notable decline of over 32% in the last three months, presenting potential opportunities for investors looking for discounted entries. For those interested in further analysis and tips, InvestingPro offers additional insights on Extreme Networks; to explore these, use coupon code PRONEWS24 for an extra 10% off a yearly or biyearly Pro and Pro+ subscription.
Understanding the company's recent performance, including a revenue growth of 14.09% over the last twelve months, juxtaposed with a quarterly revenue decline of 6.9%, can help investors gauge the potential for recovery and growth as forecasted by Lake Street Capital Markets for the second half of fiscal year 2025. Extreme Networks' next earnings date is set for May 1, 2024, which will be a pivotal moment for investors to assess the company's progress towards its targets.
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