Given These 'Challenging' Times For Brocade, Barclays Lowers Its Target To $9

Brocade Communications Systems, Inc. BRCD reported its second quarter financial results on Thursday afternoon, in line with management’s guidance, but mostly below the Street’s expectations. Following the announcement, Barclays analyst Mark Moskowitz reiterated an EqualWeight rating on the stock, while trimming his price target by 10 percent to $9.

In a report issued Friday, the expert pointed out that, softness across the SAN and IP Networking segments will probably “defer sustainable growth beyond the near term despite the addition of Ruckus.” In fact, segment trends are still uneven, leading Barclays analysts to remain not-so-constructive on the stock, at least until sustained improvements are seen.

Moreover, it was not only the April quarter results that disappointed the analysts; guidance for the July quarter was also quite feeble and mostly below the firm’s expectations. Actually, management highlighted lingering weakness for the storage market but more robust Americas and Federal revenue. For the full year, they expect SAN and IP Networking revenue to come in lower than the company originally projected; management will provide new guidance in the company’s September Analyst Day.

What To Do With The Shares?

Moskowitz ended the report with a brief recommendation. “Modest revenue growth and share gain potential likely limit outperformance potential in the model and thereby the stock. Brocade's FC business can be resilient and the company's shareholder friendly posture is a plus.” However, as stated above, for the firm to become more optimistic on the stock, the analysts need to see the IP networking business “sustain above-trend growth lift, and so far, it remains spotty,” the expert concluded.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.