Deutsche Bank Sees Weak Outlook For Brocade Communications Systems

Brocade Communications Systems, Inc.'s (NASDAQ: BRCD) growth outlook is too weak to support gains in its share price, an analyst said Tuesday.

Wunderlich's Matthew S. Robison downgraded the computer parts maker to Hold from Buy, advising that "there's time to wait for a more attractive opportunity to invest in Brocade."

Brocade beat fourth-quarter expectations Monday by a penny, posting EPS of $0.24 on revenue growth of just 1 percent.

Brocade closed Tuesday down 2.4 percent at $11.40; Year-to-date, shares are up 28 percent.

Although the company forecast slightly higher-than-expected fourth-quarter revenue, "we think the stock is likely to fade" on a disappointing margin forecast, Deutsche Bank's Brian Modoff said in a note.

Modoff maintained a Hold rating on Brocade and an $8 target.

With the company's next significantly new product line a year away, "we see few identifiable catalysts," Morgan Stanley's Scott Schmitz said, maintaining a Hold and $11 target.

Schmitz said the company's results are showing signs of becoming more "predictable and sustainable" than in the past, although its recent improvements through restructuring and strategy tweaks are "factored in" to its current share price.

Robison, who maintains a price target of $12, called the recent quarter a "solid performance" for Brocade, with its earnings beat stemming from a resurgent router business.

Although Brocade expects to start selling a significantly new line of fiber channel products in the first half of fiscal 2016, "we're guarded about potential delays," Robison said.