Despite Strong Q2 From Barracuda, Imperial Capital Maintains Its Underweight Rating

Barracuda Networks Inc CUDA reported its FQ2 results ahead of expectations, backed by higher appliance sales and expense timing. The company’s core business is likely to continue to generate solid growth, Imperial Capital’s Michael Kim said in a report. He maintains an Underperform rating on Barracuda, with a price target of $20, citing sustained headwinds.

The 12-month price target implied 14 percent downside from the company’s current share price, analyst Kim mentioned.

Results Announced

Barracuda reported revenue of $87.9 million, ahead of Imperial Capital’s estimate of $86.0 million and the Street expectation of $85.3 million. Adj. EPS came in at $0.21, beating Imperial Capital’s and the Street’s $0.13 estimate.

Continued Growth

Kim express optimism regarding continued solid growth at the company’s core business, estimating 20 percent y/y billings growth. This may be offset partially by flat billings in the legacy on-premise business.

Continued Headwinds

“We expect appliance revenue will continue to decline as customers increasingly migrate to could infrastructure and virtual solutions, reducing demand for hardware appliances,” the analyst commented.

Given the sustained headwinds to Barracuda’s hardware appliance sales and attached subscriptions, the company’s shares appear overvalued, Kim stated. He added, “We would view the stock more constructively with stronger acceleration in core business, international expansion and higher free cash flow (FCF) leverage.”

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