How Analysts View Brocade After Solid Earnings Gain

Brocade Communications Systems Inc. (NASDAQ: BRCD) reported earnings this past week and it created quite a stir. After closing out the prior week at $7.81, Brocade shares were up over 20% on the week, and the stock rose on the first three days of the four-day week.

With such a strong performance, 24/7 Wall St. wanted to go beyond just the earnings to see how the analysts with ratings were covering Brocade after the solid news and the big price jump.

Brocade reported revenue of $574 million, which was flat year over year and down 2% quarter over quarter. Its operating earnings of $0.29 per share were ahead of estimates and were up from $0.27 a year ago and $0.26 sequentially. Brocade even said that the report exceeded its own prior revenue and earnings expectations, due to SAN and strong customer demand for Fibre Channel storage.

Another tease from management, pointing toward 5G and other aspects, was that Brocade promised to make a number of innovative new product announcements that will expand its total addressable market.

The analysts were not unilaterally positive. Still, the bias was positive all in all. Brocade was raised to Buy from Hold with a $10.50 price target (versus an $8.52 prior close) at Wunderlich.

S&P Capital IQ maintained its Hold rating with a $10.00 price target. Still, it raised earnings estimates by 2% for 2016 and 1% for 2017 while trimming gross margin expectations due to what it sees as an adverse product mix. Morningstar has a mere Hold rating but its $11.00 fair value estimate is higher than most of the positive ratings seen elsewhere.

Brocade had a consensus analyst target of $10.23 before earnings. That figure had not changed as of Friday but should be expected to do so next week.

Other analyst calls were seen as follows:

  • BMO Capital Markets maintained its Market Perform rating and $10 price target.
  • Buckingham Research maintained its Neutral rating but lowered the price from $10 to $9.
  • Craig Hallum maintained its Buy rating but lowered its price target to $11.
  • Deutsche Bank maintained its Hold rating but lowered its price target to $8.50 from $9.00.
  • Goldman Sachs maintained its Neutral rating but the firm cut its price target to $11 from $12.
  • SunTrust Robinson Humphrey maintained a Neutral rating but lowered its price target from $11 to $10.

24/7 Wall St. would point out that Brocade is one of those stocks that has found itself on and off as a rumor mill stock. This was squashed in 2013 by Morgan Stanley after seeing rumors in early 2012 and even back in 2010. To be frank, Brocade buyout rumors date back much farther than that — back when Brocade’s stock was far lower.

Brocade shares closed trading at $9.59 on Friday. The company’s 52-week trading range is $7.40 to $12.96 and its market cap was right at $3.95 billion.