Needham & Company Starts Infoblox (BLOX) at Buy; Margin Expansion Story

May 17, 2013 8:22 AM EDT
Get Alerts BLOX Hot Sheet
Price: $26.45 --0%

Rating Summary:
    6 Buy, 10 Hold, 1 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 29 | Down: 30 | New: 23
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Needham & Company initiates coverage on Infoblox (NYSE: BLOX) with a Buy. PT $26.00.

Analyst Alex Henderson notes valuation looks rich at first blush, but said margins are just starting to expand.

"Longer term, we think Infoblox should be able to produce better than a 20% Operating Margin," the analyst said. "However, near term as the company is building its infrastructure and distribution reach, we think the margins, while solidly expanding, understate the true earnings power of the company. Accordingly, we think the either a Price to Sales or a normalized margin analysis is warranted. On this basis, BLOX is trading at a discount to other high-growth companies. Its P/S ratio is comparable to or less than CHKP, CTXS, FFIV, and FIRE. On a P/E basis, BLOX is at 40x CY14 estimates, but at only 10-11% Operating margins. Normalizing margins to a 20% level halves the valuation."

The firm also notes the company has rapid growth in all the right segments of IT.

"We consider Infoblox technology to be critical to enabling virtualized Data Centers," Henderson said. "The hallmark of virtualization is the move from "static" siloed structures to fluid, agile, dynamic Data Centers where assets are constantly being turned up and turned down and topologies are constantly in flux. Infoblox enables automated management in these environments."

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

Shares of Infoblox closed at $21.82 yesterday.

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