The reaction from investors to Brocade Communications Inc.’s (NASDAQ: BRCD) quarterly report was swift and ugly: shares opened Friday morning down 2% and dropped nearly 14% before the skid stopped. The company posted $0.21 in earnings per share (EPS) on $590.7 million in revenue, compared with consensus estimates from Thomson Reuters of $0.17 in EPS on $576.3 million in revenue.

The recently closed acquisition of Ruckus Wireless was the main driver of a 36% boost to year-over-year quarterly revenues in the company’s IP networking division. But net income fell to $10.5 million from $91.7 million in the year-ago quarter as expenses rose from $252.1 million to $336.3 million. Gross margins (on a GAAP basis) dropped 6.5 percentage points sequentially and 7.0 points year over year.

Given all that, it might seem appropriate to downgrade the shares or at least lower the price target. That’s not what’s happened. Merrill Lynch reiterated its Buy rating on the stock and lifted its price objective from $10.50 to $11 a share with this comment on the firm’s rationale:

Brocade trades at a significant discount to peers despite: 1) a more durable SAN business that expectations, 2) a number of product cycles over the next several quarters impacting business lines that account for over 87% of product revenues and 3) long-term opportunities in the growing [software-defined networking] SDN and [network functions virtualization] NFV markets.

Oppenheimer was a bit more cautious, holding onto its Perform rating:

Brocade reported revenues and EPS that were 3% and 31% above Street estimates on strength in wireless and greater than expected share buybacks. Revenue and EPS guidance of $640mn/22c, was slightly below consensus of $643mn/23c. The company is performing well relative to expectations despite a challenging macro environment and pressure in its core market. We reiterate our Buy rating on the stock and increase our PO from $10.5 to $11 on increased confidence in management’s ability to execute, durability in the SAN market due to strong All-Flash Array sales and the 32G product upgrade cycle, and strength in the wireless business.

Other analysts also weighed in Friday:

• Citigroup raised its price target from $10 to $11.
• Craig Hallum lifted its price target from $11 to $13 and rates the stock a Buy.
• Deutsche Bank raised its target from $8 to $9 with a rating of Hold.
• JPMorgan cut its price target from $10 to $8.50.
• Piper Jaffray raised its price target from $8 to $9 with a rating of Neutral.
• UBS boosted its price target from $8 to $8.50 but rates the stock a Sell.
• Wunderlich Securities raised its price target from $9 to $11 and rates the shares a Hold.

Brocade stock closed Friday at $9.24, down 11.6% for the day and in a 52-week range of $7.40 to $10.94. The consensus 12-month target on the shares is $9.54 and almost certainly does not reflect any of the day’s changes.

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