CTXS Citrix Systems Inc

We downgrade our recommendation on Citrix Systems Inc. (CTXS) to Neutral based on its current valuation. The stock price has soared more than 94% in the last year. Citrix is growing gradually as virtualization and cloud computing becomes essential for large enterprises to reduce costs when the economy begins to recover from the recession. As a leading provider of enterprise software with desktop virtualization at its core, the company will benefit from the latest trend of globalization.Management raised its financial forecast for full fiscal 2011.

The desktop virtualization market is expected to accelerate further in 2011. While server virtualization currently has an addressable market size of approximately 35 million servers’ worldwide, desktop virtualization has the potential to impact more than 600 million desktop users in corporate environments alone. Research firm Gartner estimated that desktop virtualization will be applied in 100 million personal computers by 2013. Centralized management of employee desktops will provide greater security, control and cost savings. At the same time, virtual desktop will also give end users flexibility, choice and self service. Desktop virtualization market size may exceed $1 billion in 2011.

Citrix has a very healthy liquidity position. At the end of the first quarter of 2011, the company had above $1,638.8 million of cash and marketable securities. Balance sheet remains free of any debt obligations. Furthermore, the Board of Directors of Citrix has enhanced its share repurchase program by $500 million.

Nevertheless, Citrix is currently trading at the high-end of its 52-week price range. At present, Citrix is trading at significantly higher multiples compared with the S&P 500 average with respect to several valuation metrics. We believe the above mentioned positives are already reflected in the current valuation leaving little room for above market gain anytime soon. Citrix primarily competes with VMware Inc. (VMW) and Red Hat Inc. (RHT). 

 
CITRIX SYS INC (CTXS): Free Stock Analysis Report
 
RED HAT INC (RHT): Free Stock Analysis Report
 
VMWARE INC-A (VMW): Free Stock Analysis Report
 
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