Storage equipment networking vendor Brocade Communications (BRCD, Financial) posted solid results for the recent quarter, driven by storage area networking solutions and IP networking. The storage area networking solutions grew 3% year-over-year, while IP networking grew 5% due to higher sales for its Ethernet switching products and routing products. In addition, the company is experiencing strong orders in anticipation of its new products that are scheduled to be officially launched in the fourth quarter 2014.
Brocade Communications reported revenue in the third quarter of $545 million, an increase of 2% year over year, beating estimates of $534 million for the quarter. Its net earnings for rose 21% to $0.23 per share, outpacing consensus forecasts of $0.19 earnings per share for the quarter.
The way forward
Looking forward to the fourth quarter, revenue is expected to be in the range of $550 million to $570 million, and earnings are anticipated to range between $0.21 per share and $0.23 per share. The analysts are estimating earnings of $0.23 per share on the revenue of $562.43 million for the fourth quarter. For the full year, the company sees earnings of $0.84 per share on the revenue of $2.2 billion.
Brocade will benefit from the changing atmosphere in the networking industry which is creating tremendous growth opportunity, mostly in the data center for the company. Moreover, customers are looking for superior ways to modernize their network, using open, virtualized and straightforward features and technologies that should assist Brocade to generate higher sales through innovative solutions and world-class offerings.Â
Data center growth is a catalyst
Brocade enjoys a strong position in the data center market through numerous concentrated and significantly differentiated products and services such software defined networking solutions that provide end-to-end cloud-based solutions. OpenFlow 1.3 enables the operators to disclose complex network behavior, enhance performance, and influence a richer set of capabilities, while its OpenDaylight solutions are integrated to facilitate the developers to utilize and develop commercial products and technologies.
Its storage area networking solutions, or SAN, is experiencing solid momentum in Asia, Eastern Europe, and South America, as these regions are developing a large SAN infrastructure that should complement its data center infrastructure in these regions. The company will be rolling out many new exciting products, such as its 10-gigabit virtual router for carrier-class networks and OpenFlow 1.3 support in these regions that should contribute significantly to its revenue in the fourth quarter.
Brocade is also witnessing tremendous momentum in its IP networking, due to new high density routing products from its service providers across the world. It expects its IP networking revenue to grow in the range of 6% to 15% during the fourth quarter. The company is also seeing higher sales for its IP networking solutions to the U.S. Federal Government and strong VEx sales to data center customers that should boost its sales.
Conclusion
Brocade Communication Systems is currently trading at the trailing P/E of 18.99 and forward P/E of 11.35, which signifies rational valuations for the stock that has tremendous prospects in the future. Moreover, its PEG ratio of 1.39 for the next five years continues to support its growth and indicate high growth for the company going forward. Analysts have estimated CAGR of 8.33% for the next five years that displays remarkable growth potential for the company in the long run.
