PacCrest's Rob Owens Remains Overweight Barracuda Networks On Bounce-Back

• Barracuda Networks Inc CUDA shares have lost 24 percent year-to-date, and are trading significantly below their 52-week high of $46.78.
• Pacific Crest's Rob Owens maintained an Overweight rating on the company, with a price target of $48.
• While shares have plunged after the company’s F1Q billings miss, Owens believes the company would meet the F2Q expectations, driving investor confidence and an improved valuation.

Analyst Rob Owens said that better results in Barracuda’s backup business are key to driving the company’s F2Q billings in-line with expectations. New product launches, increased distribution capabilities and improving demand trends could boost the company’s $2Q billings results more in line with historical levels.

Owens believes that Storage is critical to Barracuda achieving billings growth, since it represents an estimated 40 percent of the company’s new product mix.

From the time Barracuda became a public company, reporting results for seven quarters now, it has been able to achieve margin leverage ahead of expectations, by continuing “its steady march to its target margin profile,” Owens commented.

In the report Pacific Crest noted, “We believe the Street still does not fully appreciate the company's best-in-class monetization of its installed base due to a much higher subscription component per appliance sale relative to what is typical of many other similar vendors. We believe margin results will continue to surprise to the upside.”

Barracuda’s shares have been under pressure despite the company having a proven business model, exhibiting margin expansion and positive earnings and free cash flow. The current valuation does not completely reflect that the company’s cash flow growth has been higher than 20 percent. “We believe that with a return to improved execution, valuation will improve,” Owens added.