Q1 Preview: Shorts Seem Uninterested in Brocade (BRCD) Ahead of Results

Brocade Communications Systems, Inc. (Nasdaq: BRCD) is trading higher ahead of the company's first quarter earnings report, expected out after the market closes. Shares are up about 5.7% today.

BRCD is expected to report EPS of $0.10 on revs of $543.89 million. Last quarter, the San Jose, CA-based data storage giant posted EPS of $0.14, on an adjusted basis, with revs of $550.4 million, compared to the consensus EPS of $0.13 and revs of $536.59 million. Looking at Q110, Brocade produced EPS of $0.19, adjusted, on revs of $539.5 million, mixed to the consensus EPS of $0.15 on revs of $548.43 million.

Brocade lost 12% through the quarter to $5.64 at the end of January. The stock is up 1.1% since then, and finished out 2010 about 33% lower.

A simple valuation pegs BRCD with a forward P/E of 11.3x FY12 EPS estimates, compared to 11.4x for Int'l Business Machines (NYSE: IBM) and 16x for EMC Corp. (NYSE: EMC).

Data from Bloomberg has 16 analysts with a Buy on BRCD, 20 with a hold, and none suggesting to Sell. The analyst price target average is $6.40, with a high of $9 and low of $5. Shares have traded in a range of $6.99 - $4.64 over the last 52-weeks.

Summary
Brocade is currently expecting Q111 adjusted EPS of $0.09 - $0.10 with sales of $535 - $550 million. When issued, following fourth quarter earnings, the numbers fell short of Street expectations looking for EPS of $0.14 and revs of $555.03 million.

• J.P. Morgan is looking for EPS of $0.10 with revs of $542.7 million. The firm isn't expecting fireworks, dinosaurs, and thunder to erupt from the report, rather just a simple strong quarter from the company. JPM notes that their talks with industry contacts point to increased spending for networked storage, which is backed by commentary from EMC and IBM. JPM also thinks that a positive inflection point for Brocade's Ethernet business is brewing, following 18 months of often volatile results. Finally, JPM thinks that government spending cut concerns are overdone, and that any problems that Cisco (Nasdaq: CSCO) has voiced are more company-specific. Brocade derives 20% of their revs from government spending.
  
  Looking ahead, JPM expects Q211 EPS of $0.09 on revs of $520.3 million. They have an Overweight rating on the shares, and $7 price target.
  
  
• Wedbush is looking for EPS of $0.10 on revs of $541 million. The firm expects Brocade to come in-line with the Street revenue estimate, and top EPS views on better gross margins and Federal R&D tax credit. Like JPM, Wedbush sees Ethernet gaining traction. Additionally, they see Dell (Nasdaq: DELL) and Brocade creating a bundle with Brocade's VDX product in response to Cisco and EMC's vBlock product, which could drive upside for Brocade. Wedbush also thinks that fundamentals for Brocade are improving, amid underperformance to the Nasdaq in CY10.
  
  Wedbush has an Outperform on the shares, with a price target of $7.

Notably, Brocade has seen a little downside following the past four quarterly earnings reports, though guidance for the company has typically been below the Street over the same time.

Additionally, market data has Brocade with a short interest of 12,798,500 shares, or about 2.7% of all outstanding shares.

Brocade Communications Systems is expected to release their Q410 earnings on Tuesday, February 15, 2011, at approximately 7:00am EST. Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results withi0 n seconds of their release.

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