Blue Coat Suddenly Becomes Meaningful Competition for Cisco, Riverbed

Overnight, networking vendor Blue Coat Systems (BCSI) has become a meaningful competitor to Cisco Systems (CSCO), Riverbed Networks (RVBD) and other tech stars, writes W.R. Hambrecht analyst Ryan Hutchinson in a note Wednesday following stronger-than-expected results from Blue Coat Wednesday morning.

He’s reiterating his Buy rating on the stock and raising his price target to $90 from the $65 price target he established a month ago. This comes with no estimate revisions; instead, Hutchinson is raising his valuation multiple on the company because of strength in the so-called WDS product line, which has now become competitive wth those of Riverbed, he says.

Extracting about $6 in cash per share, that means he’s gone from basically a 25x forward multiple to a 35x forward multiple. “In our view, the implications of the company’s impressive results extend beyond the scope of typical earnings upside surprises,” writes Hutchinson.

We believe that Blue Coat has become a meaningful player in the WDS space, joining a small club of players competing over what is commonly viewed as a very large opportunity.

BCSI vs. CSCO vs. RVBD 1-yr chart: