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Citrix Systems Inc. (NASDAQ:CTXS) is scheduled to release its first quarter 2011 results on Wednesday, April 27, after the closing bell. The current Zacks Consensus Estimate for the first quarter is pegged at 32 cents, representing an annualized growth of 3.47%.

With respect to earnings surprises over the trailing four quarters, Citrix Systems has outperformed the Zacks Consensus Estimate in all the three quarters except one quarter where it missed the Zacks Consensus Estimate by 2 cents. The average earnings surprise was a positive 10.07%, implying that the company has outdone the Zacks Consensus Estimate by the same magnitude during the same period.

Fourth Quarter Recap

On January 26, 2011, Citrix Systems reported its fourth quarter 2010 financial results. Quarterly net revenue was approximately $529.7 million, up 17% year over year and exceeded the Zacks Consensus Estimate of $508 million. GAAP net income was $94.4 million or 49 cents per share compared with a net income of $88.2 million or 47 cents per share in the prior-year quarter. However, quarterly adjusted earnings per share (NYSEARCA:EPS) were 55 cents, significantly higher than the Zacks Consensus EPS estimate of 48 cents.

Gross margin in the fourth quarter of 2010 was 88% compared with 88.3% in the year-ago quarter. Operating expenses in the reported quarter were around $353 million versus $320.7 million in the prior-year quarter. Operating margin in the reported quarter was 21.4% compared with 17.3% in the prior-year quarter.

Agreement of Estimate Revisions

In the last 30 days, out of the 13 analysts covering the stock, 2 analysts increased their EPS estimate for the first quarter of 2011 while none reduced their estimates. However, for the second quarter of fiscal 2011, out of the 13 analysts covering the stock, none of the analysts revised their estimates.

For fiscal 2011, in the last 30 days, out of the 14 analysts covering the stock, 1 analyst increased its EPS estimate but none decreased their estimates. Likewise, for fiscal 2012, out of the 13 analysts covering the stock, 1 analyst increased its EPS estimate while none decreased their EPS estimates.

Magnitude of Estimate Revisions

During the last 30 days, the Zacks Consensus Estimate was in line with the ongoing quarter and the upcoming quarter estimate of 32 cents and 44 cents, respectively. Similarly, for fiscal 2011 and 2012, the Zacks Consensus Estimates were in line with the current estimates at $1.92 and $2.17, respectively.

Earning Surprises

In the previous quarter, Citrix Systems reported EPS of 55 cents, which beat the Zacks Consensus Estimate by 7 cents. The current Zacks Consensus Estimates for the ongoing quarter reflects a 3.13% downside potential while the upcoming quarter contains a 0.00% upside potential (essentially a proxy for future earning surprises). Similarly, fiscal 2011 has a 0.52% downside potential while for 2012, the Zacks Consensus Estimate reflects a 2.77% upside potential.

Our Recommendation

Strong financial outlook along with moderate economic recovery and increasing trend for globalization will drive growth in our view. However, we believe Citrix is fairly valued at current levels as the stock is presently trading at a 52-week high, leaving limited room for improvement. Moreover, stiff competition from Vmware, Inc. (NYSE:VMW) will act as a headwind for the company going forward.

We, thus, maintain our long-term Neutral recommendation for Citrix Systems. Currently, Citrix Systems has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

Source: Citrix Systems: Earnings Preview