NEW YORK (TheStreet) -- Shares of Brocade Communications Systems (BRCD) were down on heavy trading volume early-afternoon Thursday as RBC Capital Markets lowered its rating on the stock to "sector perform" from "outperform."
The firm also reduced its price target to $12.75 from $14.00 on shares of the San Jose, CA-based supplier of networking hardware, software and services.
Brocade yesterday agreed to be purchased by chipmaker Broadcom (AVGO) for $5.9 billion, or $12.75 per share.
"While the valuation was a tad lower than what we originally anticipated (closer to $14), we think the asset has been properly analyzed by potential suitors and do not foresee a topping bid," RBC said in an analyst note.
The firm added that it feels the transaction is "less strategic" and more financial in nature.
DA Davidson analysts believe Broadcom is paying a reasonable price for Brocade.
The firm cut Brocade's stock rating to "neutral" from "buy," citing valuation. Davidson has a price target of $12.75.
Davidson added that Broadcom may have wanted to purchase Brocade as a means of "owning both ends" of the fibre channel connection. Broadcom purchased Emulex, which sells fibre channel host bus adapters, for $606 million in 2015 and its deal with Brocade will give it access to the company's fibre channel switches.
Additionally, Wunderlich decreased its rating on Brocade's stock to "hold" from "buy" based on the Broadcom deal, TheFly reports. The firm has an $11 price target, according to FactSet.
More than 12.20 million Brocade shares have traded so far today vs. the 30-day average of 9.63 million.
Separately, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author.
The team rates Brocade Communications as a Buy with a ratings score of B-. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. The team feels its strengths outweigh the fact that the company has had sub par growth in net income.
You can view the full analysis from the report here: BRCD