Radware Downgraded At Oppenheimer; Stock Needs Stability And Better Execution

• Shares of Radware Ltd. (NASDAQ: RDWR) have declined almost 41 percent year-to-date, hitting a low of $15.85 on September 29.
• Oppenheimer’s Ittai Kidron has downgraded Radware from Outperform to Perform.
• The company has pre-announced that there could be a meaningful miss for 3Q15. Kidron believes that this shortfall is likely to have been driven by execution issues.

Analyst Ittai Kidron said that he would prefer to remain in the sidelines “until Radware can show more stability in execution and the ability to better manage the volatility in the service provider business.”

Radware expects to post its 3Q15 revenue and EPS at $48 million and $0.10, respectively, significantly below the consensus and the guidance range. “The company didn't offer details in its release, yet we suspect that the miss is due to execution issues in the lumpy carrier business,” Kidron stated.

With service providers contributing about 30 percent of Radware’s revenue, Kidron believes that there could be a more than 50 percent miss in this category.

However, according to the Oppenheimer report, “Even with the significant 3Q15 miss and estimates reduction, Radware will remain cash flow positive in 2015 and 2016.”

Kidron believes that given the cash position and expectations of depressed share price, the company could undertake more aggressive buybacks.

Although Kidron prefers to remain on the sidelines due to “material execution issues in play and no clear visibility,” he believes that the company “has a strong portfolio and a growing partnership roster that can drive upside.”

The revenue and EPS estimates for 2015 and 2016 have been lowered. Kidron expects Radware to issue conservative guidance for 4Q15.