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Brocade Systems (BRCD) provides Storage Area Network (SAN) solutions to help IT departments better manage and optimize their data storage needs. BRCD has been outperforming the market since late August and has recently pulled back from a new 52 week high at 12.43 to support at 11.50. The pullback to a short-term oversold condition has seen Chaikin Money Flow stay positive, which is a sign that institutional investors are accumulating the stock on weakness. The overall strength of the Computer – Office Equipment industry group adds to BRCD’s appeal, as industry group strength creates a tailwind for strong stocks within the group.
Brocade is expected to report its 1st quarter earnings on February 13 and has already guided analyst estimates higher for the quarter. The company has bested analyst estimates in 7 of the past 8 quarters.
Buy the current weakness in Brocade in anticipation of a rally to new highs above 13 in the weeks ahead.
BRCD has taken advantage of its strong stock price and the low interest rate environment by recently issuing $500 million of 1.375% senior convertible notes due in 2020. They will use the proceeds to redeem all of their outstanding 6.875% senior secured notes also due in 2020. This is an attractive enhancement to BRCD’s balance sheet and an example of the progress that Brocade has made in reorienting their business in the highly competitive cloud and physical data storage area.
Brocade was out of favor with institutional investors because they were losing market share to cloud computing offerings from companies like Amazon (AMZN) and Rackspace (RAX). They responded aggressively by buying Vyatta, a manufacturer of virtual routers in early 2013. BRCD has now partnered with these tough competitors in the virtual storage space by integrating the Vyatta vRouters into the Rackspace and Amazon clouds.
Having reconfigured their business model to be able to provide a hybrid physical and virtual storage solution for its customers, BRCD is rumored to be looking for a buyer for the company. Late in 2014, the Wall Street Journal speculated that Brocade had hired Qatalyst Partners to find a buyer for the company.
This helped propel BRCD to new highs and highlights the new potential for the company’s storage technology offerings, which may make them attractive to a larger company.
Brocade has a bullish Chaikin Power Gauge stock rating which is driven by Industry Group strength, a strong earnings trend and projected earnings growth, positive trends in analyst estimates revisions, and opinions which have led to higher price targets for BRCD.
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Chaikin Analytics stock research
Chaikin Power Gauge stock rating model
NASDAQ Chaikin Power Stock Indexes
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
