On Dec 31, 2013, Zacks Investment Research downgraded
SolarWinds Inc. (
to a Zacks Rank #5 (Strong Sell).
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Why the Downgrade?
The downgrade primarily reflects management's cautious
fourth-quarter guidance as well as declining profitability due to
continuing investments across business (N-able and legacy
products), increased hiring as well as higher spending on
Although SolarWinds reported a better-than-expected third
quarter, management's guidance failed to impress the market. For
the fourth quarter of 2013, SolarWinds expects revenues in the
range of $90.3 million-$92.2 million, up 23.0%-25.0% on a
The Zacks Consensus Estimate for revenues is currently pegged at
$92.0 million, which tends toward the high end of management's
However, new license sales within the U.S. Federal business are
forecasted to decline over 60% sequentially. Uncertainty related
to federal spending is expected to remain a headwind for top-line
growth in 2014.
Management expects non-GAAP earnings between 33 cents and 34
cents per share for the fourth quarter, reflecting a meagre
growth of 3.1% to 5.9% from the year-ago quarter. We believe
higher operating expenses (in addition to higher expenses related
to the Confio acquisition) will make it difficult for SolarWinds
to attain this target in the fourth quarter.
SolarWinds expects full-year 2013 revenues in the range of $329.3
million-$331.2 million. The Zacks Consensus Estimate for revenues
is currently pegged at $329.0 million, slightly lower than
management's guided range. Non-GAAP earnings per share are likely
to be in the range of $1.56 to $1.57 for the full year.
The Zacks Consensus Estimate for fourth-quarter 2013 declined
6.5% (2 cents) to 29 cents over the last 60 days.
The Zacks Consensus Estimate for 2013 increased 3.8% (5 cents) to
$1.35 per share over the last 60 days. However, the Zacks
Consensus Estimate for 2014 plunged 15.8% (24 cents) to $1.28 per
share over the same period.
Other Stocks to Consider
Other better-ranked stocks that are performing well at the
current levels include
Red Hat (
Interactive Intelligence Group (
American Software Inc.
. While Red Hat and Interactive Intelligence have a Zacks Rank #1
(Strong Buy), American Software carries a Zacks Rank #2