5 Firms Launch Coverage Of BladeLogic Amid Buyout Speculation

Five firms Tuesday launched coverage of data center automation software newcomer BladeLogic (BLOG), which has been a red-hot stock since it came public in late July at $17 a share. The stock closed Friday at $25.30, up 49% since its debut, in no small measure due to speculation that the company could be acquired.

Note that all five firms which launched coverage Tuesday were involved with the IPO. Here’s a rundown on their comments:

• Merrill Lynch’s Kash Rangan started the stock with a Neutral rating, asserting that the shares are fairly valued. He notes that the company’s “scarcity value” has been enhanced by the pending acquisition of rival Opsware (OPSW) by Hewlett-Packard (HPQ), which by the way happened just two days before the BladeLogic IPO. He says the company could be an attractive acquisition candidate, but cautions that “investors may already be factoring in a take-out premium.”
• Morgan Stanley’s Peter Kuper started coverage with an Equal Weight rating. He says the stock is above his one-year fair value of $22, but below his bull case value of $35. He notes that the company should benefit from “the virtualization movement” and continued acquisition speculation. Kuper says the stock is a play on utility computing, and that the company is “well positioned to benefit from the expected shift toward utility computing in data centers.”
• Citigroup’s John Reilly Walsh launched with a Hold rating and $27.50 price target. He says BLOG’s software allows data centers to “manage server sprawl” by automating server set-up, change and updates. He says the company is targeting one of the faster growing segments in infrastructure software.
• Wachovia’s Philip Rueppel started the stock with an Outperform rating. He says the stock is worth $30-$33, or 7.7x-8.5x enterprise value/sales, in line with the the 8.4x multiple HP is paying for Opsware.
• Cowen’s Walter Pritchard launched with an Outperform rating, asserting that there could be another 20%-25% upside over the next 12 months. “BladeLogic is levered to some of the most powerful growth drivers in technology, which should result in growth that is well in excess of its peers and make the company attractive to a number of potential acquirers,” he writes. He contends that in a takeover there could be “significant upside to the current share price.” The company, he says, “is a scarce asset in an increasingly important market.”

So, if the company is such a hot acquisition candidate, who might buy it? Cowen’s Pritchard provides a list of 9 potential buyers, ranked in order of their likelihood to make a bid.

• Ranked “high” are EMC (EMC)/VMware (VMW) and IBM (IBM).
• Ranked “medium” are Symantec (SYMC), CA (CA), Cisco (CSCO) and Microsoft (MSFT).
• Ranked “low” are Oracle (ORCL), BMC (BMC), Sun (JAVA) and Dell (DELL).