RBC Moves To Sidelines On Radware, But Long-Term Investors Have Positives

In a report published Wednesday, RBC Capital analyst Mark Sue downgraded the rating on Radware Ltd. (NASDAQ: RDWR) from Outperform to Sector Perform, while lowering the price target from $29 to $20, on concerns that the company might continue to face execution challenges in Asia for another two to three quarters, while the U.S. service provide spending sales cycles might be lengthening.

Sue does, however, believe that there could be some positives for long-term investors, such as the DDoS OEM deal with Cisco Systems, Inc. (NASDAQ: CSCO), ramp in the company's subscription offerings and "a tighter software-based integration vs. typical hardware OEM partnerships."

While the near-term estimates have been reduced due to continuing execution challenges in Asia, the RBC Capital report also said, "There's also limited visibility on US carriers, which remains lumpy following weakness in 1Q/2Q; there's concerns some deals may see push-outs beyond 2H."

In addition, the analyst expects Radware to ramp its opex activity in CY16, in order to fuel organic investments in strengthening its security portfolio. The CY16 non-GAAP EPS estimate has, therefore, been lowered from $1.11 to $1.00.

"Given private market valuations for security-focused companies, we expect more of an organic approach to expand security offerings. Radware's made security R&D investments in recent qtrs., yet a ramp in opex activity may be needed considering the pace of innovation needed," Sue explained.