Stone Fox Capital's  Instablog

Its always comical to us how stocks continue to trade based on analyst recommendations. Especially ones without street credibility. After all we've seen in over the last decade that takes place on Wall Street, its difficult to read some of these reports with a straight face.

Last night, Riverbed (RVBD) reported great numbers with earnings beating estimates by 28% and reporting 18% Year over Year growth. They also guided higher then the Street. Also considering how easily they just beat the Q3 guidance they gave back in July its hard to take their numbers as anything other then the baseline - $104-107M and $.18.

So how could any analyst downgrade a stock after that report? Well, it turns out that one of the analysts with highest numbers decides to take management at face value. Management says $.18 so now he all of a sudden thinks they'll hit that number exactly. He does maintain the high end of the revenue. All in all he recommends a sell with a $20 target.

See report at StreetInsider.com for amusement purposes only. Its pretty diffcult to come away from RVBD's Q3 report with a negative view. They talked about a new product being demanded by customers for cloud computing (buy TMRK) to replace the Atlas product that they canceled. The Auriga guy was down on that, but didn't mention the potential of the new product.

What I don't understand is how the market reacts to just one analyst. The numbers on average for RVBD will be rising. It isn't uncommon to see one analyst lower number, but what about the 5 that will raise them. After the Q2 report the stock floundered for a couple of weeks before refilling the gap. Don't be surprised if it happens again. These numbers definitely didn't scare off JNPR or HPQ (see old news for deal rumor) and in fact the drop in the stock price might make management more willing to sell. The results make it easier to justify the price.