NEW YORK (

TheStreet

) -- For a stock that's consistently one of the most heavily traded on Wall Street,

Brocade Communications

(BRCD)

has been range-bound for most of 2010 and may stay that way for a while.

Based on Wednesday's close at $5.10, the stock has lost almost 33% so far this year, but its 52-week high of $8.05 occurred way back in mid-January. The big break lower came on Feb. 23 as a disappointing full-year outlook sent shares tumbling 23% with volume reaching almost 185 million. Since then, the stock hasn't breached $7 and has meandered along below $6 much of the time.

Although Brocade's shares have bounced off a 52-week low of $4.64 set in late August, their 200-day moving average sits at $5.53 and the only real momentum they have seen in the past six months is when

takeover talk occasionally heats up

.

The action in the stock earlier this week, however, may be the start of another leg lower as investors and analysts alike grumbled in the wake of Brocade's fiscal fourth-quarter report. The results for the three months ended in October were slightly ahead of Wall Street's consensus view, but

the outlook for the first quarter ending in January was weak

, signaling that hopes for a sequential increase in revenue for a third quarter in a row were unfounded.

"

We continue to recommend that investors stay on the sidelines," said ThinkEquity, which maintained a hold rating and 12-month price target of $6 on the shares following the report.

The problem for current Brocade shareholders is that those sidelines are getting mighty crowded. The stock has extensive coverage on Wall Street, but 19 of the 34 analysts rating the stock give it a hold rating. And even the bulls that rate the shares at buy (eight) or even strong buy (seven) aren't predicting dramatic price appreciation as the median 12-month price target sits at $6.50, a level the stock saw on an intraday basis as recently as Nov. 1 before pulling back once again.

More concerning is that it's difficult to see how the stock can make a convincing move higher if it isn't able to outperform analyst expectations in fiscal 2011. Right now, Wall Street is looking for a profit of 45 cents a share, down from earnings of 59 cents a share in fiscal 2010, with revenue projected to grow less than 5% year over year to $2.19 billion.

Lower profits and middling topline growth don't usually inspire buyers, and those estimates have come down since the company's forecast on Monday for non-GAAP earnings of 9 to 10 cents a share for its fiscal first quarter ending in January on revenue of between $535 million and $550 million. Prior to the company comments, Wall Street was expecting a profit of 14 cents a share in the first quarter on revenue of $557 million.

"Brocade continues to disappoint investors with inconsistent results and lowered guidance, while material swings in product revenues make forecasting difficult," said BMO Capital Markets in a note to clients on Tuesday titled "The Song Remains The Same."

BMO Capital also kept its market perform rating on the stock -- the equivalent of a hold -- but brought its 12-month price target down to $5.75 from $6 to reflect expectations the shares will fetch a weaker multiple going forward, saying it expects "poor execution will keep the stock in check."

And that's where things get tricky for Brocade. The company's lower revenue view was mostly blamed on an expected holdup on government spending given the political uncertainty following the midterm elections, but as ThinkEquity noted in its analysis, management also guided for a nearly 10% sequential increase in operating expenses for the first quarter as it spends to build out its Ethernet business.

"Considering BRCD's typical revenue trajectory through the year is for flat-to-slightly-up quarters in 2Q and 3Q followed by a strong revenue increase in 4Q, and given OpEx is likely to increase sequentially in dollar terms through the year, we believe achieving the full-year operating margin guidance

17-20% is likely to prove challenging for BRCD in FY11," ThinkEquity said.

Wedbush Morgan provided the bullish view in its analysis, acknowledging operating margins were under pressure but saying fiscal 2011 could still turn out well for Brocade if its investments pay off.

"Although management guided FQ1 operating margins in the 15-16% range, they maintained the long-term target of 17-20%," said the firm, which has an outperform rating and $7 price target on the stock. "We think BRCD needs one more material and balanced quarterly beat before investors will have confidence in the company.

In the meantime, Brocade's stock seems likely to keep trading upwards of 18 million shares per day -- its trailing three-month daily average -- but not really going anywhere. BMO Capital may have said it best in its dismissal of the lingering takeover speculation about the company.

"Despite persistent comments from a variety of sources, including the press, we do not see any strategic acquirers for BRCD," the firm said. "In other words, we don't see any bailouts for BRCD -- management must execute."

--

Written by Michael Baron in New York.

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Michael Baron

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