Extreme Networks, Inc. – Value Analysis (NASDAQ:EXTR) : October 23, 2017

Capitalcube gives Extreme Networks, Inc. a score of 44.

Our analysis is based on comparing Extreme Networks, Inc. with the following peers – Brocade Communications Systems, Inc., Sonus Networks, Inc., ADTRAN, Inc., Cisco Systems, Inc., HP Inc., Juniper Networks, Inc., LM Ericsson Telefon AB Sponsored ADR Class B, Motorola Solutions, Inc. and Infinera Corporation (BRCD-US, SONS-US, ADTN-US, CSCO-US, HPQ-US, JNPR-US, ERIC-US, MSI-US and INFN-US).

Investment Outlook

Extreme Networks, Inc. has a fundamental score of 44 and has a relative valuation of OVERVALUED.

Fundamental Score

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Company Overview

  • With respect to peers, relative outperformance over the last year is in contrast to the more recent underperformance.
  • It currently trades at a Price/Book ratio of (12.23).
  • EXTR-US‘s EBITDA-based operating performance is relatively high as is its price to EBITDA multiple, which also implies higher future growth than most of its peers.
  • EXTR-US has relatively low net profit margins while its asset efficiency is relatively high.
  • The company’s year-on-year change in revenues and earnings are better than the median among its peer group.
  • EXTR-US‘s return on assets currently and over the past five years has trailed the peer median and suggests the company might be operationally challenged relative to its peers.
  • The company’s median gross margin and relatively low pre-tax margin suggest high operating costs versus peers.
  • Compared with the peers chosen, EXTR-US has had faster revenue growth in prior years and a current Price/EBITDA ratio that suggests faster growth in the future suggesting superior growth expectations.
  • The company seems to be over-investing in a business with median returns.
  • EXTR-US has the financial and operating capacity to borrow quickly.

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Leverage & Liquidity

EXTR-US has the financial and operating capacity to borrow quickly.

  • With debt at a relatively low 9.41% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 20.97%), and a well-cushioned interest coverage level of 5.21x, EXTR-US can probably borrow quickly. We classify the company as Quick & Able in terms of its capacity to raise additional debt.
  • Of the 9 chosen peers for the company, only 8 of the stocks have an outstanding debt balance. Companies with no debt include SONS-US.

EXTR-US has moved to a Quick & Able from a Constrained profile at the prior year-end.

  • EXTR-US‘s interest coverage is its highest over the last four years and compares to a low of -13.53x in 2015.
  • While its interest coverage increased to 5.21x from -4.33x (in 2016), its peer median decreased during this period to 6.76x from 9.90x.
  • Interest coverage rose 12.67 points relative to peers.
  • EXTR-US‘s debt-EV continues to trend downward and is now over one standard deviation below its four-year average debt-EV of 23.47%.
  • While its debt-EV decreased to 9.41% from 17.50% (in 2016), its peer median increased during this period to 20.97% from 17.94%.
  • Relative to peers, debt-EV fell 11.12 percentage points.

Access the detailed analysis for Extreme Networks, Inc.

Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Brocade Communications Systems, Inc. 27.58 2.78 2.74 25.68
Sonus Networks, Inc. 0 2.09 -214.51 999
ADTRAN, Inc. 2.81 3.36 83.1 219.83
Cisco Systems, Inc. 28.03 3.03 14.94 42.62
HP Inc. 24.61 0.97 12.79 46.11
Juniper Networks, Inc. 22.37 2.48 9.88 51.54
LM Ericsson Telefon AB Sponsored ADR Class B 19.57 1.85 8.16 31.54
Motorola Solutions, Inc. 25.19 1.33 5.37 29.4
Infinera Corporation 9.52 1.8 -10.07 -5.24
Extreme Networks, Inc. 9.41 1.27 5.21 47.44
Peer Median 20.97 1.97 6.76 44.37
Best In Class 2.81 3.36 83.1 999

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Company Profile

Extreme Networks, Inc. engages in the development and sale of network infrastructure equipment. It offers related services contracts for extended warranty and maintenance to its enterprise, data center, and metropolitan telecommunications service provider customers. The company’s product categories include modular ethernet switching systems, stackable ethernet switching systems, wireless ethernet controllers and access points and centralized management software. Extreme Networks was founded by Gordon L. Stitt and Herb Schneider in May 1996 and is headquartered in San Jose, CA.


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