Pacific Crest Upgrades Barracuda Networks Citing Product Improvements

Pacific Crest’s Rob Owens believes trends are improving for Barracuda Networks Inc (NYSE: CUDA), driven by “alignment in the product set, new incentivizations toward virtualized solutions, and a cloud-centric channel marketing campaign with supporting solutions.”

Owens upgraded the rating on the company to Overweight with a price target of $30.

Better Opportunity

“After enduring execution and visibility challenges, we see improved opportunity at Barracuda driven by renewed product alignment, fast-growing recurring revenue becoming a larger portion of the mix, and a leading public cloud strategy among SMB IT solutions,” the analyst mentioned.

Owens stated that the robust FQ1 results support this thesis, and the company now has a better handle on its non-core legacy business as compared to the fast-growing subscription revenue business.

Related Link: D.A. Davidson Downgrades Barracuda Networks As Shares Surpass Price Target

“Besides focusing sales efforts and driving better visibility, rationalizing the product set creates opportunity for cost reductions,” the analyst believes.

Margin Expansion Opportunity

Owens pointed out that although Barracuda Networks’ record free cash flow and EPS have been driven by the timing of expenses to a large extent, they also represent persisting margin expansion opportunity.

“After a lackluster fiscal 2016, we believe Barracuda is finally back on track and has made the necessary initial steps to refocus its product portfolio and sales teams toward a changed demand environment, where virtualized products are king and partnerships with public cloud giants are essential,” the analyst went on to say.

In the long term, the analyst believes this would position the company well to be the security vendor of choice at the low end.

At time of writing, Barracuda shares were up 3.85 percent on the day to $23.47.

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