RBC Capital Cuts Price Target on Brocade Communications (BRCD) as Soft Demand Drives Revenue Miss
RBC Capital maintained a Sector Perform rating on Brocade Communications (NASDAQ: BRCD), and cut the price target to $9.00 (from $10.00), following the company's 2Q earnings report. Brocade reported results at the midpoint of the preannouncement, with revenues/EPS of $523M/ $0.22 vs. Street at $529M/ $0.22. The revenue miss was driven by the softer demand across the SAN product portfolio and weak router sales within IP Networking.
Analyst Mitch Steves commented, "While results for the quarter were in-line with the recent pre-announcement, guidance was light driven by an anticipated -3.5% to -7.0% q/q decline in the SAN business (implies down ~9% y/y). Positively, the company anticipates seeing an uplift in Q4 due to increased US federal spending. From a Ruckus standpoint, assuming the transaction closes towards the end of May, it would contribute ~$50-60M to the topline and the gross margin would see a near-term negative impact due to channel inventory and deferred revenue recognition impact. Net Net: given the lighter than expected results from Core Brocade, we remain on the sidelines until the Ruckus transaction closes and we obtain visibility into the new combined entity from a growth and margin perspective. Adjust price target to $9 (from $10) to reflect lowered EPS estimates."
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Shares of Brocade closed at $7.97 yesterday.