BMO Capital Markets Reiterates SolarWinds at Market Perform on Neutral 2013 Guidance
In a report published Tuesday, BMO Capital Markets reiterated SolarWinds Inc. (NYSE: SWI) at Market Perform citing neutral 2013 guidance, and maintained its price target of $55.
BMO Capital Markets noted, "SWI's 2013 revenue guidance of $328-$335 million (vs our $338 million estimate) and non-GAAP operating margin guidance of 51%-52% (vs. our 51.9% estimate) were essentially in line considering the pattern of consistent beats from SWI. By product segment, SWI guided to “low 20%” growth in the core network management (netman) business (60% of revs) and 40%+ growth in the newer systems management (sysman) business (30% of revs). While impressed with the ramp of the new sysman tools, we remain concerned that the core netman business is slowing, from 25% growth in 1Q12 to 15% growth in 3Q12. Management admitted for the first time that the internal focus on ramping the sysman business may have weighed on the core business, which we suspect is also facing a maturity and penetration issue. We like SWI's positioning as a low-price vendor in a period of budget constraint, but we conclude that the valuation multiple (30-35x P/E) is full given the 20%-23% license growth guidance. [We] reaffirm our Market Perform rating and maintain a price target of $55."
SolarWinds closed at $52.60 on Tuesday.
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