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Citrix: Will They Defy Morgan Stanley’s ‘Challenged’ Label

Our economics team's longtime base case of a synchronous global recovery, modest increases in inflation pressures, and a gradual removal of monetary policy accommodation has now been embraced, by and large, by the consensus. Our US Equity Strategy team has remained positive on an equity market they believe is "Classic Late Cycle". At the same time, our US Quant Strategy team’s work shows that stock-specific risk is increasing (see “Quantitative Equity Research: The Great Compression”, Sept. 28, 2017). Indeed, they found that by one key measure, stocks are now more idiosyncratic than they have been since 2001. Against this backdrop, for some long term investors, it may make sense to focus not on the cycle, but through the cycle. Indeed, Morgan Stanley Research has long focused on identifying multi-year secular trends — powerful drivers that can reshape or disrupt economies, sectors, and business models over the long term.

Weiss, who has an Underweight rating on Citrix stock, writes that cloud computing is undermining

The shift towards Software as a Service (SaaS) delivery models lowers the value of Citrix’s core Application Virtualization franchise. While cost cutting has resulted in a significant boost to Citrix's margins in recent years, core revenue growth has struggled to remain in positive territory, likely reflecting the company's weak secular product positioning. Another abrupt change in leadership again raises questions on the efficacy of recent growth initiatives, making it difficult to garner confidence in a sustainably improving margin trajectory. While the new strategic imperative appears to focus on: 1) accelerating the shift to subscription, 2) returning more capital to shareholders and 3) further improving margins, we note an accelerated shift to cloud subscriptions would seem at odds with further margin improvement near term.

For tonight, the Street is modeling for the company revenue of $692 million, and earnings per share of $1.04.

Citrix stock today is down 73 cents, or 0.9%, at $82.46.


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