Earnings Preview: Blue Coat Systems

Blue Coat Systems (BCSI) is expected to report Q3 earnings after the market close on Thursday, February 26, with a conference call scheduled for 5:00 pm ET.

Guidance

The consensus estimate is 16c for EPS and $108.82M for revenue, according to First Call.

Analyst Views

Management provided lower guidance for Q3 on the last earnings call, but it was better than some analysts had feared. The company sees Q3 EPS of 12c-20c, and revenue of $106M-$112M.

Wedbush's industry checks indicate that results this quarter will likely be in-line with guidance as spending in January dropped off after a decent November and December, a pattern which was consistent with what Cisco (CSCO) recently reported. The firm's estimates are 14c and $107.2M. Specifically, Wedbush's channel contacts were upbeat mid-way through Q3 and stated that orders were arriving at a decent pace even while acknowledging some instances of slipped deals. The firm's checks showed resellers indicating that pricing was stable, at least until December, with Blue Coat remaining at their customary 20-30% discount to rivals Riverbed (RVBD) and Cisco. Deal sizes continue to be small and Wedbush's contacts expressed some uncertainty about future orders as clients continue to take a wait and see approach to further investments.

However, Wedbush thinks Blue Coat shares can react positively should further cost cutting be announced and there are indications that the sales force issues are being resolved. The firm acknowledges that the stock price likely already reflects the weak spending conditions and internal issues at these levels; however, Wedbush awaits evidence of sustained execution before declaring an inflection point. In terms of guidance, Wedbush expects continued conservative Q4 guidance, which will likely reflect the spending uncertainty on the part of many businesses. The firm rates Blue Coat a Hold with a $10 target.