Needham & Co.’s Alex Henderson this afternoon starts networking equipment vendor Riverbed Technology (RVBD) with a Strong Buy rating and a $25 price target, writing that stock’s P/E multiple of 13.3 times next calendar year’s expected EPS is “an exceptionally strong entry valuation.”
In contrast to a tepid upgrade to hold this morning from Jefferies & Co.‘s George Notter that suggested that Riverbed’s market for “WAN Optimization” equipment is essentially near a saturation point among enterprise customers, Henderson still sees plenty of growth:
In order to justify the current RVBD price, investors must be convinced the outlook has been permanently degraded, the segment has tapped out its growth potential or it�s structurally shifted away from the category. We believe there is plenty of growth potential, likely a 20% plus growth area over the next 3-5 years.
The company’s sales force reorganization, moreover, can work, he thinks:
Riverbed Is Just Saying �Go Back to Doing What You Were Doing Before I Told You To Do Something Else, Which Was Harder.� Riverbed�s sales force knows how to sell WAN Op, in our view�they didn�t know how to sell virtual ADCs and virtual branch servers. Riverbed has shifted the compensation back to the straightforward sale of standard Steelheads. The sales force can simply go back to what they were good at before Riverbed mucked it up by broadening the line and distracting them from selling WAN Op.
Henderson models $844.8 million in revenue this year and 94 cents profit per share. He sees $1 billion in revenue and $1.17 per share next year. That is above the Street revenue consensus of $826 million, though his profit view is a penny lighter than consensus.
Riverbed�competes in the enterprise, and to some extent the service provider networking equipment market with�Cisco Systems�(CSCO),�Juniper Networks(JNPR), and�F5 Networks�(FFIV).
Riverbed shares today fell 44 cents, or 2.8%, to $15.05, and were up 7 cents, or half a percent, at $15.12 in late trading.
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