) -- After nearly doubling so far in 2010,

Riverbed Technology


was facing a fair amount of skepticism headed into its third-quarter report from a valuation standpoint.

Of the 30 analysts covering the San Francisco-based maker of networking appliances and software, 18 had hold ratings on the stock. But the tide appears to be turning in the wake of Thursday's better than expected numbers, which were accompanied by news of a two-for-one stock split, as three firms raised their ratings on the shares on Friday.

"Admittedly, we missed what has been an impressive move in the stock," said Canaccord Genuity in the research note detailing its upgrade to buy from hold and 12-month price target boost to $60 from $33.50. "However, with early evidence that multi-quarter catalysts will effectively pull our 2012 model into 2011 (revenue and margin) we are revisiting our traditionally more valuation-sensitive stance on the stock."

Riverbed shares surged Friday, rising 18.3% to close at $54.27 on volume of 9.8 million, nearly five times the issue's trailing three-month daily average of 2.2 million. The session's peak of $55.72 is a new 52-week high for the stock, which has rallied more than 150% since dipping below $20 in December 2009.

Jefferies and Wedbush Morgan made calls similar to Canaccord's, going to buy and outperform, respectively, from hold, while also setting 12-month price targets of $60.

After Thursday's closing bell, Riverbed reported an adjusted profit, which excludes certain items, of $26.6 million, or 34 cents a share, for the third quarter ended Sept. 30, up from a year-ago equivalent profit of $19.2 million, or 25 cents a share, and ahead of the average estimate of analysts polled by Thomson Reuters for earnings of 28 cents a share. Revenue came in at $147.8 million in the latest quarter, a 45% increase from the same period last year, and better than a consensus view of $135.5 million.

The company, whose products improve the performance and management of wide area networks, also announced the approval of plans for the stock split, which will be effective Nov. 8 for shareholders of record on Nov. 1.

As for what went so right in the third quarter, Jefferies said the numbers indicate Riverbed is making serious strides in distancing itself from the competition.

"Our checks show


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new software releases and enhancements have had little competitive impact," the firm said. "Cisco vows to reclaim share over the next 3 months, but Riverbed may have pulled too far ahead."

Wedbush said the growth in Riverbed's business and its positive outlook had essentially changed the valuation proposition for the stock.

"We have always believed the company was the premier operator in the segment; but in our view, valuation was an obstacle," it said. "With the significant adjustment in estimates due to the better than expected results and outlook, we think valuation is reasonable and there may even be upside to our revised estimates."

The firm said Riverbed's outlook for earnings of 27 cents a share on revenue of between $155 million to $158 million compared to its own estimates for a profit of 24 cents a share on revenue of $150 million in the December, justifying increases in its models for both the whole of fiscal 2010 and fiscal 2011.

Canaccord probably summed up the valuation situation best in its note, essentially asking for a mea culpa.

"Given we've been on the sidelines through the dramatic appreciation over the last several months, we admit today's upgrade will not likely win many near-term style points," the firm said. "However, continued inaction in the face of compelling evidence to the contrary is the greater offense."


Written by Michael Baron in New York.

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