By Sam Boughedda
Extreme Networks (NASDAQ:EXTR) plunged Wednesday after CDW (NASDAQ:CDW) negatively pre-released its quarterly results and sharply lowered its outlook for US IT spending this year.
CDW said it expects the US IT market to decline in the high single digits year-over-year in 2023, below its most recent expectations for the market to be flat year-over-year in 2023.
EXTR is currently down more than 15%, hitting levels last seen in January as investors become more cautious about the company's outlook.
Following CDW's warning, Craig-Hallum analysts downgraded EXTR to Hold from Buy, cutting the firm's price target on the stock to $17.50 from $22 per share.
The analysts told investors that they are "surprised by the magnitude of the more cautious spending outlook shift."
This "makes us more cautious regarding Extreme Network's previous outlook for the company's demand to remain strong and its backlog to remain stable for several quarters before beginning to be worked down, as well as for previous expectations of the company's strong backlog of $542 million to take until the end of FY25 (Jun) to return to normalized sub-$100 million levels," they explained.
"Given the sharp shift in market outlook and our view that this may lead to Extreme's previous outlook to be at risk, we believe investors may look to pay a P/E multiple closer to in line with historical norms until there is further clarity whether the company can execute to previous expectations."