UPDATE: Summit Research Initiates Coverage on Brocade Communications Systems with Buy Rating, $8.50 PT on High Growth Opportunities

In a report published Monday, Summit Research analyst Srini Nandury initiated coverage on Brocade Communications Systems BRCD with a Buy rating and $8.50 price target. In the report, Summit Research noted, “We initiate coverage of BRCD with a BUY rating and a PT of $8.50 based on a 12x multiple on our CY2014 EPS of $0.68. The stock is cheap (trades at 9.2x on C2014 EPs, below the 10.5x average during last five years) with BRCD continuing to enjoy leadership position in Fiber Channel (FC) switches. The ongoing restructuring is expected to be EPS accretive ($100mln in savings) and the likelihood of the company initiating a dividend in the near-term is high, in our view. We are encouraged by a new management team that seems to understand what it takes to succeed in the Ethernet business and, we are cautiously optimistic that Brocade can finally grow this business at a steady pace. In addition, we expect BRCD to continue to deliver on the SAN side, with some help from the macro. Given favorable risk/rewards, we are accumulators of shares on weakness.” Brocade Communications Systems closed on Friday at $6.38.