Big Upside Expected for Barracuda Networks in 2014

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Barracuda Networks Inc. (NYSE: CUDA) was one of the recent initial public offerings (IPOs) of 2013, and it somehow did not perform as well as others despite being in the right space for cloud computing. The company’s offerings are in storage and security, supposedly with more than 180,000 customers. Now we have an expiration of the so-called analyst quiet period from the underwriting firms, and the mood sure seems very promising.

If the analysts at the underwriting firms are correct, the lack of a big jump in the Barracuda Networks IPO could end up making this a huge winner into year-end and 2014. This one priced at $18 and has traded in a range of $18.63 to $23.77 since its IPO. Shares closed at $20.70 on Friday.

Here are the analyst calls we have seen so far:

  • Bank of America Merrill Lynch initiated coverage as Buy with a $26 price target.
  • JMP Securities initiated coverage as Market Outperform with a $25 price target.
  • J.P. Morgan initiated coverage as Overweight with a $25 price target.
  • Morgan Stanley initiated it as Overweight and with a $28 price target.
  • Pacific Crest initiated it as Outperform and with a $28 price target.
  • William Blair initiated it as Outperform.

The long and short of the matter is that upside has been forecast by all the analysts from the underwriting syndicate. Some analysts are even calling for upside of as much as 40% over the next 12 months.

The Merrill Lynch report said:

Barracuda sells security and storage solutions in a unique business model that generates 70% recurring revenues and high gross margin at about 80%. Its consumer-like marketing strategy has created strong brand equity within its target SMB market, where it offers three layers of disruption: lower price, simplicity and ease-of-use, and a unique go-to-market strategy. We forecast revenue growth of 15% to 17% in the next two years, with operating margins slowly increasing from 1% to 3%, respectively. However, low margins are mainly related to revenue recognition timing, where free cash flow margin for the next two years is modeled at 19% and 22%. Also, we believe management’s margin targets could prove conservative.

Apparently the coverage universe is bullish enough that it is driving the stock up almost 4% to $21.51 in early Monday trading.