What happened

Shares of Calix (CALX -0.25%) were gaining this week after the cloud stock delivered better-than-expected results in its third-quarter earnings report and offered strong guidance for the current quarter. The stock also got a boost after the report came out as analysts reacted favorably to the news.

As of Thursday's closing, the stock was up 12.8% for the week.

A person in a home office looking at their computer and phone.

Image source: Getty Images.

So what

Calix, which helps manage bandwidth access for telecoms and other communication services providers, said revenue came in ahead of its guidance, climbing 14.4% to $172.2 million, which beat the analyst consensus at $167.6 million.

Calix continues to be a beneficiary from increased demand for internet access, especially from remote workers. Expansion of broadband access in rural areas is also giving the company a boost.

Further down the income statement, gross margin improved to a record in the third quarter at 52%, up 150 basis points from the year-ago quarter, and the company posted adjusted earnings per share (EPS) of $0.35, down from $0.40 in Q3 2020, as marketing costs jumped as the company expands its sales force to take advantage of increased demand.

In a shareholder letter, management said, "Overall demand was robust, and our supply chain outperformed despite the continued challenging global environment for component sourcing and supply chain logistics."

Analysts broadly cheered the results. Jefferies said the report "looks great" and reiterated a buy rating and a price target of $74, while several other analysts raised their price targets as well, noting that the company was poised to benefit from the expansion of rural broadband.

Now what

Looking ahead, the company called for revenue of $170 million to $176 million, compared to $170 million in Q4 2020, and adjusted EPS of $0.20 to $0.25, both of which are within range of the analyst consensus. For 2022, the company sees revenue growing toward the high end of its annual target of 5% to 10% growth.

Calix stock was a laggard for years on the market, but shares have taken off during the pandemic as the company's products have become more valuable due to the pandemic disruption and increased bandwidth consumption from home.

After a rally of more than 600% since the beginning of 2020, the stock now looks pricey, trading at a price-to-earnings (P/E) ratio of 45 based on this year's expected EPS. Investors may want to temper their expectations going forward.