Barracuda Networks Worth $25, Not $41: Imperial Capital

In a report issued Friday, Imperial Capital analyst Michael Kim reiterated a Buy rating on shares of Barracuda Networks. However, he trimmed his estimates on “lower than expected billings guidance due to weakness in Europe, unfavorable trends in the storage market, and greater mix shift toward virtual appliances,” even though the second-quarter results were in-line with the firm’s expectations.

Related Link: Why Morgan Stanley Is Defending Barracuda's 36% One-Day Decline

In addition, Kim lowered his price target from $41 to $25, to reflect the lower estimates and comparative valuation. Nonetheless, the target price still implies plenty of upside potential from current prices.

Looking Forward

According to the research note, analysts at Imperial Capital are waiting for greater “visibility on improved sales execution and recovery in Europe.” They added that, over the near term, investors could remain cautious.

The experts believe Barracuda could witness further volatility as it completes its transition toward virtual and cloud offerings. Moreover, they are looking for a larger contribution from its managed service provider (MSP) offerings, accelerated by the recently announced $65 million acquisition of privately held Intronis, which is expected to substantially increase the company’s channel reach.

To conclude, the analysts noted that the selloff in Barracuda’s stock was overdone. As such, the discount gap with its peers could narrow any time.

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