MorningWord 10/10/13: With the rhetoric cooling in DC, and the S&P 500 futures up nearly 1% it would appear that we may be in for a less volatile period in the coming weeks, except for the fact we have just started to get results for Q3 earnings. The markets may calm with some sort of kick the can solution to the government shutdown and debt ceiling standoff, but don’t think for the second it is going to be that easy for shareholders of single stock names that disappoint on results and forward guidance.
Take CTXS for example. Last night, the software vendor pre-announced worse than expected Q3 results, guiding revenues down about 3.5% and eps down about 6% from consensus. The stock is trading down about 12.5% in the pre-market. Here is the thing that sticks out to me like a sore thumb – the stock just made a new 52 week high on Sept 20th, and with today’s opening looking near $58, the stock is getting dangerously close to making a new 52 week low that was put in back in Nov 2012 and right at the low of 2013 (below).
This is fairly volatile price action to say the least for a $12 billion market cap company, but the long term chart might have been signalling a fairly large break one way or the other. The 4 year chart below shows the triangle pattern that has been building and with this morning’s break-down, could signal a new range for the stock btwn $50 and $60 if it can’t make a stand and hold $60 today.
The long-term weakness of the technical picture could be indicating significant fundamental problems for this once high-flying company. CTXS is certainly facing increased competition, in both its conferencing business (Google Hangouts is free) and on the security and network side. As Enis noted in his Deep Dive on competetor $FFIV last month:
If services are becoming an increasing part of the revenue mix, but are less profitable, then future earnings growth prospects might be too optimistic. In addition, operating margins have moved lower as well, potentially indicating that the services revenues are more expensive to come by, and require more sales and marketing.
FFIV is trying to combat competition with increased innovation, and its past success speaks to its ability to perform. But the continued drop in product sales is an obvious long-term concern for this former high-flier. For now, I’d still be more interested in selling strength than buying weakness.
And FFIV is the relative leader in the sector.
CTXS is one more infrastructure tech company to fall by the wayside in 2013. As we’ve noted before, the Nasdaq rally has not really been led by technology companies, especially old guard technology. Worth watching as we hit the heart of earnings season.