Barracuda Is Falling 20%, But These Analysts Are Still Bullish

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Barracuda Is Falling 20%, But These Analysts Are Still Bullish

Post by Admin on Wed Aug 26, 2015 5:43 pm

Shares of Barracuda Networks Inc
CUDA 0.77%
plunged more than 20 percent Friday after the company reported its first quarter results on Thursday.

Here are what some of Wall Street's top analysts are saying.

Morgan Stanley: Buy The Pullback

Melissa Gorham of Morgan Stanley commented in a note that after six quarters of 18 percent or more growth, Barracuda "disappointed" with "poor execution" and 12 percent billions growth.

According to Gorham, the company experienced a headwind to billings as customer demand shifted to virtualized appliances and cloud based subscriptions from physical appliances. The company also saw few larger deals in the quarter while average contract duration dipped by three months. Finally, weakness in storage drove a three to four percentage point headwind to billings growth.

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Nevertheless, the analyst suggested that investor confidence in the company is justified given its high priority of security in the mid-market, ramping distribution partners that should drive better deal volume and a "beneficial" move to the cloud that offer higher gross margins.

As such, investors should be buyers on the pullback.

Shares remain Overweight rated with a price target lowered to $45 from a previous $47.

Summit Research: Fundamentals ‘Intact'

Srini Nandury of Summit Research commented in a note that Barracuda's fundamental business is "still intact" given its 92.5 percent renewal rate in the quarter. The company also has a "predictable" revenue stream with 70 percent of revenue coming from a recurring revenue base.

"We continue to believe in the moat around Barracuda's business model – easy to use low cost products – that isn't easily surmountable for larger vendors," Nandury wrote. "While a billings miss is disappointing, we urge investors to take a balanced look at both revenue and billings to evaluate the stock."

Nandury also noted that the sell-off in shares is an "overreaction" given the increasing sales of virtual applications (which grew 58 percent year-over-year, exceeding its three-year compounded annual growth rate of 47 percent) which is a "good thing" and the company "should not be docked for the growth."

Shares remain Buy rated with a price target lowered to $45 from a previous $50.

Pacific Crest: ‘We Are Opportunistic Buyers'

Rob Owens of Pacific Crest commented in a note that foreign exchange headwinds and a weaker-than-expected storage billings and a mix shift to virtual appliances resulted in the company's billings miss.

Owens continued that storage billings was the "major culprit" as it "meaningfully" fell short of expectations with growth slowing to the low double digits from a previous greater than 30 percent rate.

Looking forward, Owens pointed out that the company disclosed many of its large deals were pushed to the second quarter (some of which have closed) and management's commentary suggests an end of quarter acceleration and "strong" June contributed to a reiteration of its fiscal 2016 guidance. As such, the analyst stated that investors should consider "any weakness as an opportunity to buy."

"We continue to view Barracuda as a solid name in SMB security and storage with a significant long-term opportunity," Owens wrote. "While disappointing billings number in the quarter is certainly a hiccup, we do not view it as changing the fundamentals nor the underlying opportunity."

Shares remain Overweight rated with an unchanged $49 price target.

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