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William Blair Upgrades Brocade (BRCD) to Market Perform

March 31, 2015 6:29 AM EDT
Get Alerts BRCD Hot Sheet
Price: $12.73 --0%

Rating Summary:
    4 Buy, 22 Hold, 2 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 9 | Down: 9 | New: 41
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William Blair upgraded Brocade (NASDAQ: BRCD) from Underperform to Market Perform, saying they expect the allout from the developing EMC (NYSE: EMC)-Cisco (NASDAQ: CSCO) divorce to benefit Brocade; in addition, other stabilizing factors across the business in the near term help mitigate our continued longer-term concerns.

Analyst Jason Ader cited the following six convictions for the upgrade:

  1. Brocade is likely to be a prime beneficiary of the growing friction between EMC and Cisco, in the form of share gains in Fibre Channel (FC) switching on the one hand and increased collaboration with EMC in IP switching on the other;

  2. The FC market is showing continued resiliency driven by pull-through from all-flash projects and upgrades to Gen 5 products (16 gigabit), with Gen 6 products (32 gigabit) on the horizon for 2016;

  3. A rebound in U.S. federal IT spending should boost growth in Brocade's IP business in the near term, especially given easy comparisons with the year prior;

  4. We see optionality on growth in Brocade's SDN solutions, which are still emerging but could boost both revenue and margins on the IP side of the business in the medium term;
  5. We see limited downside risk for the stock given the inexpensive valuation (P/E of roughly 12 times our new fiscal 2016 estimate) and our confidence in management's ability to execute; and
  6. A very healthy balance sheet and cash flow statement gives the company both strategic and financial maneuverability going forward.

For an analyst ratings summary and ratings history on Brocade click here. For more ratings news on Brocade click here.

Shares of Brocade closed at $11.79 yesterday.



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