Extreme Networks Experienced A Challenging Quarter, Cowen Downgrades Stock

Networking company Extreme Networks, Inc. EXTR has endured several recent setbacks, causing a plunge in shares this week.

The Analyst

Cowen analysts Paul Silverstein downgraded Extreme Networks to Market Perform and lowered the price target from $13 to $6.50.

The Thesis

Cowen analysts consider recent company issues detrimental, given their duration and velocity. The stock on Wednesday endured its worst drop in 18 years, and Silverstein consequently moved to the sidelines until improvement is visible.

Silverstein's EPS forecast is 50 percent below his original forecast when he initiated coverage. This initial coverage also featured analysts’ outlook of significant opportunities driven by increased gross margin, the acquisitions of Avaya and Brocade and expansion possibilities.

“EXTR has attributed each of the past three disappointments to different issues, which in turn does not engender confidence as to EXTR’s near-term guidance or longer-term optimism,” Silverstein said in a note.

Despite considerable headwinds, Silverstein remains optimistic for long-term projections.

“While we are chastened, to be fair, we still think the recent string of setbacks ultimately will prove to be transitory, with EXTR eventually driving meaningful margin progression and improved revenue growth, which in turn should translate into far better earnings power than reflected in our revised forecasts,” he added. “The Avaya and Brocade asset acquisitions appear to provide the foundational issue for all three of the disappointments. Which in turn raises the prospect that the issue is a matter of teething pains—significant teething pains—re the acquisitions.”

Price Action

Extreme Networks shares were up marginally at $6.12 at time of publication.

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