BMO Capital Markets analyst Tim Long, Ari Klein and Alex Spektor maintain a Market Perform rating for Aruba Networks, Inc. (NASDAQ:ARUN) as the company announces its earnings.

Aruba Networks

Aruba Networks, Inc. (NASDAQ:ARUN) reported revenue and pro forma EPS of $176M and $0.18, topping our/consensus forecast of $168M/$0.17. Revenue guidance was positive as well, but margins are ramping slower than we thought, leading to in-line EPS. Management continues to tout the early adoption of 802.11ac and the growth in new products. Revenues do not seem to be an issue, and we are modeling high-teens growth in FY2014 and FY2015. Management still expects to reach 20% operating margins by the end of year even as the company invests heavily in adding headcount, but we do not expect this target to be reached. We are adjusting our FY2014 revenue and pro forma EPS estimates from $689M/$0.75 to $715M/$0.77. For FY2015, we are raising our revenue and EPS estimates from $795M/$1.00 to $845M/$1.08, respectively.

Aruba Networks earnings: Impact and analysis

Aruba Networks, Inc. (NASDAQ:ARUN) performed well on the top line again, gaining back slightly more share in the last two quarters than it lost in the prior two. The transition to 802.11ac is helping, but we see more of an opportunity with Instant and ClearPass, which increase the addressable market. We would like to see better operating leverage to get more constructive on the stock.

Aruba Networks’ valuation

We are increasing our price target from $20 to $23, which represents 20x our CY2015 pro forma EPS estimate. We continue to rate Aruba Networks, Inc. (NASDAQ:ARUN) shares Market Perform.