Why DA Davidson Is Upgrading Gigamon

In a report published Friday, DA Davidson analysts upgraded the rating on

from Neutral to Buy, while raising the price target from $22 to $32. The company reported strong 1Q results, driven by demand in the security sector. Gigamon reported revenue growth of 47.5 percent y/y, up significantly from the growth rate of 18.9 percent generated in Q4 and of 23 percent reported in the year-ago quarter. EPS of $0.13 was significantly higher than the loss of 7 cents reported last year. While product revenue growth came in at 60.1 percent y/y, Service revenue rose 25.9 percent. "The company experienced a strong year-end surge of customer orders," the analysts said. Product revenue accounted for 68.6 percent of total revenue, while Services contributed the remaining 31.4 percent. This mix is similar to what was witnessed in the year-ago quarter. In the report DA Davidson noted, "Enterprise customers contributed the majority of bookings as usual, approximately 71% (45% year-over-year growth), with Service Providers contributing just 19% of revenue (56% year-over-year growth). The Government vertical contributed 10% of bookings, up 48% from the year-ago quarter but down 42% sequentially." "Based on our fiscal 2016 EPS estimate of $0.83, a 25% earnings growth rate assumption, a P/E/G ratio of 1.3 (P/E multiple of 32.5x), and adding in $4.81 per share, we arrive at our new price target of $32.00," the analysts added.