Here's Why F5 Networks Is a “Secure” Bet

F5 has done very well this year, and there are a number of reasons why the same could continue going forward.

Apr 15, 2014 at 10:20AM

Networking solutions company F5 Networks (NASDAQ:FFIV) has has a nice run-up this year. The stock is up in the mid-teens so far in 2014, and given F5's focus on expanding its portfolio of products, especially security, it could continue performing well in the future. After recent revelations regarding the Heartbleed bug, F5 is looking to garner some positive publicity for itself by stating that "little or no immediate action (is) required for most customers." 

This should give the company an edge over the likes of rival security products providers such as Juniper Networks (NYSE:JNPR). Also, the fact that Cisco (NASDAQ:CSCO) is F5's client could be another tailwind. 

A strong product portfolio
F5 extensively refreshed its product line-up last year, which enabled it to exceed its own sales forecasts. This should give F5 solid momentum going forward this year. In addition, F5's service business is also delivering excellent results, growing 17% in the first quarter. 

However, the company is ecstatic about the security business. F5 has a strong portfolio of security solutions, including different products such as ASM, APM, and AFM. The growth in data storage has given rise to the need for security products, which is why F5 is making some good moves to strengthen its security portfolio.

To bolster this segment, the company is planning to build two world-class operation centers in Seattle and Tel Aviv that will provide superior security services using F5's Versafe acquisition. Versafe's WebSafe and MobileSafe services focus on delivering anti-fraud, anti-phishing, and anti-malware Internet solutions.

F5 also plans to launch a subscription-based model to boost sales of the Websafe and MobileSafe services, and it has also started a channel partner program to spur adoption further.

Design wins to consider
F5 has won several big contracts regarding traffic management and signal delivery controller applications to support 4G/LTE deployment. As a result, F5 experienced substantial growth in sales from its service segment in the first quarter and the company anticipates this growth to continue going forward. F5 has already started getting purchase orders for its Traffic SDC solutions from tier 1 service providers in both Europe and the U.S.

In addition, F5 has seen an increase in demand for its carrier-grade NAT solution. The company has improved this offering by enhancing features and functionality to provide efficient services to customers in IP protocol stack, including IPv6 services.

Overall, F5 looks promising as it is investing in technology and has a cutting-edge suite of products that are gaining traction throughout the world. The company has aligned its product road map priorities according to emerging trends in the market. Moreover, F5 is focused on bringing significant enrichments and leading technology in key areas such as security, mobility, the cloud, and software-defined application services.

Cisco's and Juniper's troubles could be advantageous
As a result of its focus on technology, F5 can gain more business at Cisco. F5 sees good opportunity in the deployment of Cisco's application control engine module and has recorded a good number of project wins. F5's prospects are helped by the fact that customers are now looking to include additional functionality, such as security access control and application acceleration, as security is becoming an important aspect.

Since F5's solutions were not much affected by the Heartbleed flaw, this should help it land more business at Cisco. Although Cisco beefed up its security business by acquiring SourceFire last year, it hasn't completed the integration, yet. Cisco is working on a product called Advanced Malware Protection Everywhere with SourceFire, but remember that F5 already specializes in this field and as a result, it could gain more business at Cisco.

Moreover, given that even Juniper's products were found susceptible to Heartbleed, F5 could use this fact to its advantage. Juniper has a very large install base in carrier security, and F5 is trying to make its mark in this space. However, Heartbleed has affected several routers, switches, and security firewalls sold by Juniper. The company has tried to address this issue by providing a patch, but flaws like these can loosen Juniper's grip in the security market and give F5 room to expand. 

Bottom line
F5 currently trades at a trailing P/E of 29 and a forward P/E of 17. This means that the company's earnings should increase at a good pace going forward. In addition, F5 also plans to repurchase an additional $500 million worth of shares, taking its repurchase authorization to $781 million. Considering the company's strong product portfolio, F5 looks like a solid buy.

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Mukesh Baghel has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems. The Motley Fool owns shares of F5 Networks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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