NetScout Systems Downgraded On 'Weak' Preliminary Q3 Results, Slower CAPX Spending

NetScout Systems, Inc. NTCT released preliminary third-quarter results Wednesday.

The Analyst

D.A. Davidson's Mark Kelleher downgraded the stock from Buy to Neutral and reduced the price target from $37 to $27.

The Thesis

NetScout Systems' preliminary Q3 report was weak and the results fell significantly below previous guidance, Kelleher said. (See the analyst's track record here.) 

The company is increasing its buyback program to compensate for its income statement weakness, Kelleher said. NetScout showed slower CAPX spending for network assurance products, both in the service provider and enterprise markets, the analyst said. Kelleher said he decided to reduce revenue and earnings estimates for the company until he sees more clarity on expected operational changes.

Operational changes should include a product line review, Kelleher said. Unprofitable product lines from the Danaher asset acquisition are the most suitable for review, he said. 

"We believe it will take several quarters for NTCT to instigate internal changes to return the company to top-line growth," Kelleher said, adding that D.A. Davison sees a lack of catalysts to drive stock appreciation. 

The Price Action

NetScout Systems was down more than 14 percent late in Wednesday's trading session. 

Photo courtesy of NetScout.