Updated from May 19
A slew of analyst upgrades sent shares of
surging a day after the company reported much-improved quarterly results and a new round of layoffs.
Brocade's shares were recently up 43 cents, or 8.4%, to $5.56 in heavy trading, with about 14.5 million shares already exchanged vs. the three-month daily average of 8.9 million.
The storage-hardware maker's stock price has declined in recent months, while its earnings have jumped, noted Steven Berg, an analyst for Punk, Ziegel, in a report issued Thursday. Although the company still has plenty of challenges, Berg said, he raised his rating to market perform from sell.
"The spending environment is getting better and starting to manifest itself on the revenue line. More important, valuation has come into line over the past quarter," Berg wrote. "With a new product cycle coming on, we think it is time to raise our rating." (Punk, Ziegel does not have investment banking business with Brocade.)
Berg was one of some five analysts who upped their ratings on Brocade on Thursday, according to
. The reassessments of Brocade followed the company's second-quarter report after the close Wednesday.
The company announced that it narrowed its net loss on an 11% jump in sales and a sharp drop in charges. But the company acknowledged that its turnaround effort continues. As part of its earnings announcement, Brocade said it is laying off 110 employees -- about 9% of its staff -- as the latest step in its restructuring plans.
In its fiscal second quarter, Brocade lost $1.98 million, or a penny a share, on $145.58 million in sales. In the same period last year, the company lost $146.02 million, or 57 cents a share, on sales of $130.95 million.
Excluding restructuring and other charges, Brocade would have earned 3 cents a share in the quarter. That pro forma result matched both the company's estimates and Wall Street's expectations.
Analysts surveyed by Thomson First Call were expecting the company to earn 3 cents a share on $145.05 million in sales. Brocade had
predicted it would earn 2 cents to 3 cents a share in its second quarter on sales ranging from $143 million to $147 million.
In its third quarter, Brocade expects to earn 4 cents to 5 cents a share on sales of $147 million to $152 million. That's in line with analysts' expectations.
Wall Street has forecast that the company will earn 4 cents a share on $150.61 million in the July period. For all of fiscal 2004, analysts are looking for profits of 13 cents a share on sales of $597.58 million.
Brocade's revenue was up slightly from the $145.0 million it recorded in its fiscal first quarter. The result marked the fifth-straight quarter in which it posted a revenue increase, the company said.
Meanwhile, the company's gross margin hit 55.27% of sales in the second quarter. That represented an increase of 1.15 percentage points from the same quarter last year.
But the biggest help to the company's bottom line was a drop in charges. In the second quarter last year, Brocade took a $134.90 million charge for in-process research and development. The company didn't take a related charge in its just-completed quarter.
However, the layoffs resulted in a $10.5 million restructuring charge related in the second quarter. The company expects to complete the layoffs Wednesday. Company spokeswoman Leslie Davis, did not know how much the company expects to save as a result of the restructuring.