Arista Networks Jumps After Favorable Customs Ruling
Shares of Arista Networks (ANET) are on the rise after the networking equipment maker received a letter from U.S. Customs and Border Protection saying the company's products containing redesigned extensible operating system or EOS, are not within the scope of a limited exclusion order issued by U.S. International Trade Commission following Cisco Systems' (CSCO) lawsuits.
CUSTOMS RULING: Arista announced in a regulatory filing earlier that it has received a letter from the U.S. Customs and Border Protection ruling that the company's current products which contain its redesigned EOS are not within the scope of the limited exclusion order issued by the U.S. International Trade Commission, or ITC, and therefore may be imported into the U.S. Following Cisco's initial complaint accusing Arista of infringing six patents relating to five different features of EOS, the ITC had determined that the prior versions of EOS contained two features that indeed infringed three patents and issued a limited exclusion order and a cease and desist order that prohibited the latter from importing infringing products. To address these findings, Arista released the redesigned EOS for its products. On August 24, Cisco filed an enforcement action against its competitor asserting that it was violating the limited exclusion order, the filing explained.
POSSIBLE IMPORT WINDOW: Commenting on the Customs and Border Protection's ruling, JPMorgan analyst Rod Hall noted that the decision came earlier than he had expected and added that it is "positive news" for the networking equipment maker. Further, the analyst pointed out that this early 944 ruling may open a short window during which Arista can import all products manufactured overseas as well as components associated with them. Nonetheless, Hall noted that the second ITC 945 case ruling, which is a separate ongoing lawsuit also filed by Cisco, has not yet been announced, but is expected by the end of this year. Should the 945 ruling go against the company, the analyst would expect a similar timeline to the 944, with products again being banned for import for some period of time until a workaround is approved by Customs, he contended. He reiterated a Neutral rating on Arista's shares. Following the ruling, JMP Securities analyst Erik Suppiger told investors in a research note of his own that he believes the decision will remove a "significant overhang" from the stock, and will allow Arista to re-engage with component suppliers outside of the U.S. for shipments to the country, helping to reduce supply constraints and fill excess demand created over the last couple quarters. Moreover, the analyst noted that a positive ruling from the Customs and Border Protection should reduce friction in the sales process for Arista. Suppiger increased his price target on Arista's shares to $115 from $87.
PRICE ACTION: In afternoon trading, shares of Arista have gained more than 7% to $94.29.
Disclosure: None.