Brocade Communications (BRCD, Financial) has delivered impressive execution and satisfactory financial performance. The company’s revenue, gross margin and operating margin for the recent quarter exceeded its expectations. Moreover, it announced the initiation of a cash dividend to return more than 60% of free cash flow to shareholders.
Good moves
Recently, Brocade announced a partnership with Aruba for serving the wireless needs of its LAN campus customers.
In the recent quarter, Brocade divested its network adapter business and currently is focused on the reorganization of its application delivery controller business to divert more of its engineering resources towards its software-based ADX products.
These changes are believed to accelerate future development for Brocade by meeting its customers growing demands for software-based networking application.
Brocade considers paying dividend to diversify the ways in which it returns value to its shareholders, and has announced a dividend expected to be payable going forward.
Brocade has initiated a quarterly cash dividend of $0.0350 per share of common stock to its shareholders of record. Annually, the dividend represents approximately 13% of its adjusted free cash flow target for fiscal '14.
The company expects its non-GAAP gross margin to be in the range of 65.5-66.5%, within or slightly better than its two-year target model range and non-GAAP operating margin is projected to be in 22.5% to 24.5% range, within or slightly lower than its two-year target model range.
According to the company:
"With another solid quarter behind us, we are seeing the tangible benefits of our data center focused strategy," said Lloyd Carney, CEO of Brocade. "The resilience and durability of our SAN business, along with strong Brocade VDX® sales, validate our strategic direction. We continue to leverage our core competencies in hardware and software networking to position the company for growth, and we remain focused on delivering a world-class customer experience, even in the most demanding environments."
Key statistics and conclusion
According to Yahoo! Finance, the trailing P/E and forward P/E ratios of 16.80 and 10.51, respectively, points toward the robustness of the company’s operations and an investment opportunity for the investors looking at its low valuation. The PEG ratio of 1.29, above 1, represents slow company growth when compared to the industry’s average of 1.06.
The profit margin of 11.39% is satisfactory. The revenue per share and diluted EPS of 4.96 and 0.54, respectively, depicts a decline in earnings. The quarterly revenue growth of -0.30% is disappointing and represents loss to the investors as against the robust industry’s average of 22%. However, the current ratio is stable at 2.94 and signifies the robustness of the company’s balance sheet. Therefore, setting apart the recent weaknesses, the CAGR for the next 5 years per annum of 8.33% which’s comparable to the industry’s average of 15.37% promises robust long-term growth.
