Stifel Cuts Target On Barracuda To $32 As Stock Plummets

• Barracuda Networks Inc CUDA reported disappointing earnings on Tuesday, but Stifel remains bullish on the stock.

• The sell-off in the stock is likely due to the company’s reduced guidance for the next two quarters.

Stifel analyst Gur Talpaz remains bullish on Barracuda despite being disappointed by the company’s earnings results for the second straight quarter. On Tuesday, Barracuda lowered revenue, EPS and billings guidance for fiscal 2016, prompting Stifel to reduce its price target for the stock. The stock is down more than 27 percent in pre-market trading on Wednesday.

The Numbers

Barracuda reported revenue of $78.4 million for the quarter, falling short of consensus estimates of $78.7 million. In addition, Barracuda missed Stifel’s billings estimate of $101.7 million badly, reporting billings of only $98.4 million for the quarter.

Reaction

Talpaz says he is “discouraged” by the billings miss. Barracuda management blames the low number on lengthening sales cycles in the EMEA region and a broad slowdown of the storage market.

“Candidly, we were disheartened with the company’s Q2 results, given that the company saw both healthy growth in its higher-end storage business (42% y/y) as well as healthy growth within the Americas, where billings grew 19% y/y,” Talpaz explains.

Outlook

Barracuda lowered its billings guidance for the second half of 2015 from 16-18 percent growth to only 10-13 percent growth. According to Talpaz, Stifel sees the updated guidance as overly conservative.

The key to Barracuda’s second-half performance will be its execution outside of North America. While domestic performance has been consistently strong, Stifel wants to see greater international visibility from Barracuda.

For now, Stifel believes that Barracuda’s updated guidance has set the expectations bar low enough that the stock remains a compelling buy. However, the firm has lowered its price target from $36 to $32.

Disclosure: the author holds no position in the stocks mentioned.