Trade of the Day: Brocade (BRCD)

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Shares of Brocade Communications Systems, Inc. (BRCD) are on the verge of a major breakout.The $5 billion computer networking company based in San Jose, California, is a leading supplier of end-to-end Internet Protocol (IP) Ethernet networking solutions and storage area networking (SAN) solutions.

From 2001 to 2003, the company released switches based on its third-generation application-specific integrated circuits (ASIC).  In April 2002, it introduced the SilkWorm 12000, which gained more than one-third market share, and in November 2002, it acquired Rhapsody Networks (a SAN virtualization startup company).

To fend off rival Cisco Systems, Inc. (CSCO) in the storage market, the company purchased smaller competitor McDATA in 2007.  To strengthen its position in the switch/router market, it acquired Foundry Networks in 2008 — and by March 2009, it held 75.5% of the overall SAN switch market.

Two more recent acquisitions include Vyatta in November 2012 and Vistapointe in September 2014.  The Vyatta acquisition provides new opportunities in data center virtualization, public cloud, enterprise virtual private cloud, and managed services, while the Vistapointe acquisition expands Brocade’s capabilities in software networking and for mobile service provider customers.

Looking at Brocade’s fundamentals, a big positive is that total expense seems to be falling. The slopes of fourth-quarter revenue and earnings from 2013-2014 are nearly identical to those of the first quarter from 2014-2015. Thus, the revenue and earnings may beat estimates in the Q1 release, which is expected on Feb. 12.

The company has beat or matched Wall Street’s expectations over the past four quarters, and it will likely beat estimates in February. The action in the chart below shows a multi-year breakout is on the horizon.  With 17 “Hold” ratings on the stock, another earnings beat could spark upgrades. I also wouldn’t be surprised by a buyout or acquisition at some point this year as the company continues to improve its balance sheet. With that in mind, I recommend that you buy the BRCD April 12 calls (BRCD150417C00012000) at current levels (around $0.80).

Trade of the Day: Brocade Communications Systems, Inc.

BRCD shares traded to a fresh 52-week and 13-year high of $12.08 on Friday. Support is at $11.50–$11.25 and the 50-day moving average on a pullback. A run to $15 could be in the works if $12.25–$12.50 is cleared, and my target for the calls is $1.60, for a profit of 100%+.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/01/trade-day-brocade-communications-brcd/.

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