BTIG: Buy Barracuda, It's Turning Around

Barracuda Networks Inc CUDA has received a vote of confidence from BTIG analysts Joel Fishbein, Edward Parker and Abhinav Kapur.

Citing an "accelerated shift in the SMB market towards virtual/public cloud deployments," the analysts are upgrading Barracuda to Buy with an attached price target of $20.

Valuation And Justification

Just two months ago, BTIG had downgraded Barracuda following its "third straight disappointing quarter."

However, the analysts state that the issues have been fixed, and while there is still room for improvement, the company appears to be aware that "more work is required."

"While execution risks persist, checks indicate that the business is stabilizing and that CUDA should be able to grow revenue 8–10 percent long-term, generating significant FCF over the next several years," according to the analysts.

Furthermore, Fishbein mentioned that conversations have indicated Barracuda may be a target for potential consolidation within the scope of an increase in M&A activity for securities. "As such, we believe that CUDA, with its large subscription business and strong FCRF generation, fits the traditional profile for private equity and/or shareholder activism."

Finally, the analysts outlined the stock's valuation, "The stock has been re-rated following its 3Q miss. We are conservatively estimating that the company can generate revenue of $337 million (up 6.5 percent) and FCF of at least $30 million in FY17. Our $20 PT implies 2.8x EV/Sales and 33X EV/FCF."

Barracuda was recently seen up 0.75 percent at $14.97.

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