Aruba Networks (ARUN) Stock Declining Today After Hewlett-Packard Merger Deal

NEW YORK (TheStreet) -- Shares of Aruba Networks  (ARUN) are declining by 1.61% to $24.41 on very heavy volume in early market trading Monday, after the company agreed to a merger deal with Hewlett-Packard (HPQ) for $2.7 billion. 

Aruba Networks, a provider of network access solutions for the mobile enterprise will be acquired by HP for $24.67 per share in cash, Bloomberg reports.

The equity value of the transaction is about $3 billion, and net of cash and debt is about $2.7 billion.

Exclusive Report: Jim Cramer's Best Stocks for 2015

By combining its product portfolios and go-to-market strategies, the two companies believe revenue growth will accelerate and strengthen financial performance, Bloomberg added.

Hewlett-Packard expects the acquisition to be accretive to earnings in the first full year following the transaction's close, which is expected in the second half of HP's fiscal year 2015.

The company's annual sales are forecast to rise by more than $1 billion by fiscal 2017 from $729 million in the year through July, according to data compiled by Bloomberg.

About 7.48 million shares of Aruba Networks have exchanged hands, compared to its average trading volume of about 3.23 million shares a day.

Sunnyvale, CA-based Aruba Networks is a provider of next-generation network access solutions for mobile enterprise networks.

The company's MOVE, or Mobile Virtual Enterprise, unifies wired and wireless infrastructures into one network access solution for traveling business professionals, remote workers, corporate headquarters employees and guests.

Aruba's MOVE architecture provides context-aware networking, and addresses the secured mobility problem using a user-centric architecture that assigns network access policies to users instead of to data ports or other infrastructure.

Separately, TheStreet Ratings team rates ARUBA NETWORKS INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate ARUBA NETWORKS INC (ARUN) a HOLD. The primary factors that have impacted our rating are mixed, some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and impressive record of earnings per share growth. However, as a counter to these strengths, we find that the company's return on equity has been disappointing."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 0.5%. Since the same quarter one year prior, revenues rose by 20.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • ARUN has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. To add to this, ARUN has a quick ratio of 1.51, which demonstrates the ability of the company to cover short-term liquidity needs.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
  • The gross profit margin for ARUBA NETWORKS INC is currently very high, coming in at 71.65%. Regardless of ARUN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, ARUN's net profit margin of 2.66% is significantly lower than the industry average.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Communications Equipment industry and the overall market, ARUBA NETWORKS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: ARUN Ratings Report