Infoblox Looks Overvalued, Leading DA Davidson To Downgrades To Underperform

Infoblox Inc BLOX has received a buyout offer from private equity investor Thoma Bravo, according to Bloomberg News. DA Davidson’s Mark Kelleher downgraded the rating for the company from Neutral to Underperform, citing the stock’s 20 percent jump last week on news of the buyout. The price target is at $16.

Analyst Mark Kelleher commented that Infoblox’s competitive position was weak, as can been seen by its recent prerelease of disappointing April quarter results. He added that, with the takeout premium already being priced into the stock, there seems to be little upside available. Moreover, there is the potential that an actual buyout offer does not materialize.

April Quarter

“The April quarter sales weakness is notable as it comes in the first quarter following the end of a significant product upgrade cycle from which the company benefitted from throughout 2015,” Kelleher wrote. Infoblox is scheduled to report its 3Q results on Wednesday, May 25.

Rerating

The current valuation reflects that the stock is trading at a multiple of 27X the consensus fiscal 2018 EPS estimate. “For a company with little revenue growth, we believe that is an aggressive valuation,” the analyst commented. He also cited the lack of visibility to revenue growth as a reason for the downgrade in rating.