UPGRADE: ISI Group Upgrades Brocade Communications Stating 'Catalysts On The Horizon'

In a report published on Friday analysts at ISI Group upgraded its rating on Brocade Communications BRCD from Neutral to Buy. ISI also established a PT of $7.50. In the report lead analyst Stephen Patel commented that, "While we aren't exactly enthralled with BRCD's fundamental growth prospects over the next several years (e.g., Fibre Channel flattish market, tough to gain Ethernet share vs. juggernaut CSCO, etc.), we believe the potential for material share price appreciation through year-end is high driven by several potential near- term catalysts. Accordingly, we are upgrading BRCD to a BUY rating (from NEUTRAL) and establishing a $7.50 price target (or ~35% upside from current levels based on ~10x our new CY14 pro-forma EPS of $0.75). In our view, the emerging catalysts could be twofold: 1) a step- function higher steady-state quarterly EPS base post $100mil cost cutting program (i.e., closer to ~$0.18 to ~$0.20 per quarter vs. typical ~$0.15), and 2) introduction of a more shareholder-friendly capital allocation program with a dividend initiation (e.g., perhaps ~200bps or ~$0.03 quarterly dividend representing ~13% of annualized FCF)." Brocade Communications closed on Thursday at $5.45.