In this article, 3 technology stocks receiving positive upgrades from the analysts will be presented, including Brocade Communications Systems, Inc. (BRCD), JDS Uniphase Corporation (JDSU), and Allscripts Healthcare Solutions, Inc. (MDRX).
Brocade Communications Systems, Inc.
Brocade Communications Systems, Inc. supplies networking equipment and provides end-to-end Internet Protocol-based Ethernet networking solutions and storage area networking solutions for businesses and organizations of all types and sizes. BRCD dropped 2.5% and closed at $5.84 on February 20, 2013. BRCD had been trading in the range of $4.18-$6.44 in the past 52 weeks.
On February 14, 2013, BRCD reported Q1 loss of $21.26M, or 5 cents a share, compared with a profit of $58.58M, or 12 cents a share, for the year-earlier period. Revenue increased to $588.73M, from $560.64M. On an adjusted basis, BRCD reported a profit of 21 cents a share, beating analysts' expectation of 16 cents a share on revenue of $575.55M. BRCD also issued Q2, 2013 guidance, which is in line with analysts' estimates. For Q2, 2013, BRCD expects revenue to be in the range of $555-$575M and non-GAAP EPS to be in the range of $0.14-$0.16, where analysts are expecting revenues of $563M and EPS of $0.15. However, Brocade executives are concerned about Europe and sales to the deficit-challenged U.S. federal government.
Analysts at BMO Capital Markets raised their price target on BRCD from $6.50 to $7.00 on February 15, 2013. Analysts at Wunderlich also raised their price target on BRCD from $7.00 to $7.50 with a buy rating on the same day. On February 19, 2013, Buckingham Research increased BRCD's target price to $7.25. Lastly, on February 20, 2013, Needham & Company bumped its price target on BRCD from $6.50 to $7 following better-than-expected Q1 result and commented, "BRCD reported F1Q13 above Street driven by continued momentum in SAN on 16Gb ramp and solid Ethernet product sales, partially offset by seasonally soft Q in Federal. BRCD issued F2Q guide in line with Street, expecting typical seasonality in SAN and Ethernet rev. of down 2 - up 2% q/q, both essentially inline with expectations. Tone of call was positive with new CEO Carney at the helm for ~30 days. Overall, BRCD appears to be making gradual progress on its objectives across its business lines, with encouraging improvement in GM% (Ethernet GM, in particular) and OPEX leverage evident."
There are a few positive factors for BRCD:
- Higher operating margin of 12.4% (vs. the industry average of 12.0)
- Lower P/E of 14.2 (vs. the industry average of 21.0)
- Lower Forward P/E of 9.0 (vs. S&P 500's average of 14.0)
- BRCD generates an operating cash flow of $523.31M with a levered free cash flow of $85.38M
JDS Uniphase Corporation
JDS Uniphase Corporation provides communications test, measurement solutions, and optical products for telecommunications service providers, wireless operators, cable operators, and network equipment manufacturers. JDSU operates in three segments: Communications Test and Measurement, Communications and Commercial Optical Products, and Advanced Optical Technologies. JDSU declined 4.02% and closed at $14.79 on February 20, 2013. JDSU had been trading in the range of $8.47-$15.62 in the past 52 weeks. JDSU has a high beta of 2.47.
On January 28, 2013, JDSU reported net revenue of $429.4M, up 4.9% year-over-year, and EPS of $0.18, beating analysts' estimates of $422.7M and $0.14. On a non-GAAP basis, gross profit margin rose to 48%, higher than 47.1% of the year-earlier quarter and 45.8% in the prior quarter. Operating margin also improved to 11.3% from 9.8% a year earlier and 9.2% in the prior quarter. JDSU expects non-GAAP net revenue to be in the range of $405M-$425M for Q3, 2013. Analysts are expecting revenue of $412M for Q3, 2013 for JDSU.
Analysts' Calls, Multiple Upgrades
On February 13, 2013, Zacks upgraded JDSU to Outperform and cited, "In the reported quarter, JDS Uniphase improved with respect to several operating metrics. These include adjusted gross and operating margins, adjusted EBITDA and cash flow. The company's newly launched differentiated products are gaining solid market traction. We believe carrier expenditure for broadband network buildout, mobility and 100 Gbps Ethernet will increase in 2013, aiding JDS Uniphase's prospects over the long haul. Management provided an optimistic outlook for the rest of fiscal 2013." Zacks also highlighted,
Next-generation 4G Long-Term Evolution (LTE) networks became another major growth driver for JDS Uniphase. The company offers an innovative LTE test solution, which encompasses end-to-end, real-time tracing, data assurance, and OSS to derive the performance and revenue potential of LTE.
On February 15, 2013, Stifel Nicolaus maintained JDSU with a Buy rating and raised the price target from $16.00 to $18.00. Stifel Nicolaus noted,
JDSU hosted an Analyst Day in San Francisco on Thursday, February 14, 2013. We came away from the event comfortable with our positive thesis on the shares, which consists an anticipated rebound in optical communication revenue in 2013, new product leadership for JDSU across both its CCOP and CommTest portfolio, our expectation of significant CommTest operating leverage, and OSP remaining an underappreciated contributor to profitability.
On February 19, 2013, Needham & Company raised estimates and its price target on Buy-rated JDSU from $18 to $20 as the company's analyst reaffirmed the positive tone and improving outlook and noted,
Capex Visibility Reaffirmed; Improved visibility a positive indicator for JDSU and other Comm Equipment/Optical names such as EMKR, FNSR, NPTN, FN, CIEN; Optical Target Model Should Be Attainable Through New Products Alone; Optical Products Growth Target Model Should Be Attainable Through Improved Market Conditions; Strengthening Product Line Should Drive Comm Test; T&M Morphing into Service Enablement-Demand Shifting from Capex to OPEX Driven.
There are a few positive factors for JDSU:
- Higher revenue growth (3 year average) of 9.4 (vs. the industry average of -3.5)
- JDSU generates an operating cash flow of $153M with a levered free cash flow of $134.04M.
Allscripts Healthcare Solutions Inc.
Allscripts Healthcare Solutions, Inc. is a provider of clinical, financial, connectivity and information solutions and related professional services to hospitals, physicians and post-acute organizations. The Company provides a variety of integrated clinical software applications to empower hospitals, physicians and post-acute organizations to deliver world-class outcomes. MDRX increased 13.77% and closed at $12.72 on February 20, 2013. MDRX had been trading in the range of $8.84-$20.10 in the past 52 weeks. MDRX has a beta of 0.92.
On February 20, Jefferies maintained a Hold rating and boosted its price target on MDRX from $10 to $11.50 despite weak Q4 results, which were mitigated by encouraging bookings, up sequentially though still down 45% Year-Over-Year. The analyst commented,
A sizable inpatient cross-sell, and a new inpatient win (both in 1Q13) will give some bulls hope. The new management team already has several efficiency-focused initiatives in place. We will remain on the sidelines pending improved EPS visibility.
There are a few positive factors for MDRX:
- Higher revenue growth (3 year average) of 50.4 (vs. the industry average of 31.3)
- Lower debt/equity ratio of 0.3 (vs. the average of 0.5)
- Lower P/E of 47.6 (vs. the industry average of 58.5)
- MDRX generates an operating cash flow of $271.98M with a levered free cash flow of $151.99M.
In short, while all three stocks have been outperforming the market YTD, more upside potential is expected for these stocks with positive fundamental developments. However, with the recent price run-up for MDRX, investors might want to wait for a safer entry price to establish the long-term position. For BRCD and JDSU, any major pull-back may be reviewed as a buying opportunity for 2013.
Note: All prices are quoted from the closing of February 20, 2013 and all calculations are before fees and expenses. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.