Valuation is also in the eyes of the beholder. With little in the way of innovation, investors realize the ceiling is only so high for Brocade's current product portfolio. Unforunately, when Cisco Systems ( NAS: CSCO) announced an investment of $1 billion into developing a competing Fibre Channel over Ethernet switch, it essentially rendered Brocade's switch obsolete. There are two equally compelling reasons to be on the short-side of this trade: innovation and, ironically, value.Īfter paying a hefty $3.4 billion for Foundry Networks in 2008, Brocade locked in its dominance in the Fibre Channel switch market. EMC's valuation isn't outrageous, but Brocade's average growth rate of 23% over the past five years trumps EMC's 12% easily. It's considerably larger storage peer, EMC ( NYS: EMC), is valued at 13 times forward earnings and a price-to-book value of 2.5. Having purchased 9% of its outstanding shares in its latest quarter, Brocade is trading at just 10 times forward earnings and a reasonable 1.3 times book value.
With Hewlett-Packard having moved out of the hardware segment, IBM could make a perfect suitor for Brocade.īrocade also makes for an intriguing value play. Brocade is profitable and has supply partnerships currently in place with IBM ( NYS: IBM), Hewlett-Packard ( NYS: HPQ), and Dell, to name a few.
According to reports from The New York Times, Brocade is in the early stages of talks with private-equity firms with nothing yet being set in stone. The two primary lures to buying into Brocade are the possibility of a buyout and as a value play relative to its peers.īrocade unsuccessfully has put itself up for sale before, but many feel it could be different this time around. Let's take a look at some of the things that could make you want to buy, sell, or possibly hold Brocade this year. An earnings warning in August sacked investors' hope and the stock ended the year down 2% after having been down 40% at its worst in 2011.ĭespite the relatively flat year, traders on both sides of the coin have reason to be excited about Brocade in 2012. Last year was a struggle to get back to even for Brocade Communications' ( NAS: BRCD) shareholders.
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