Shares of Riverbed Technology (RVBD) are up 80 cents, or 5%, at $16.32 following an initiation of coverage note from Gabelli & Co.’s Hendi Susanto, who writes that the company’s revenue growth will rebound as it moves past issues with its sales team and product transition.
Following its quarterly earnings release on April 19, 2012, RVBD shares have been weak largely because of perceived market deceleration and weak execution in a major product transition. Riverbed is currently revamping changes in multiproduct sales strategy and conducting a major product transition that we foresee will be completed by the second- half of 2012.�
Susanto gives a brief rundown of Riverbed’s “WAN optimization” market:
The network equipment market is expected to grow 8.7% and reach $39.4 billion in 2012 according to IDC. Outpacing the market growth, WAN optimization is expected to reach $1.5 billion in revenue by 2014 according to Gartner. Riverbed is the number one leader in WAN optimization solutions with ~50% market share, well ahead of the number two competitor Cisco. Management estimates that WAN optimization market penetration is still below 15-20%. Riverbed�s WAN optimization solutions (~92% of revenue) accelerate network performance, increase workforce productivity, and reduce operational costs.
Susanto takes a valuation cue from the competitors, which include Citrix Systems (CTXS), NetScout Systems (NTCT), Opnet (OPNT), F5 Networks (FFIV), Radware (RDWR), and privately held Blue Coat Systems, which may have was sold to a private equity consortium in February 2012. Blue Coat Systems. Blue Coat, notes Susanto, “had estimated revenue of $458 million and EBITDA of $22 million for its fiscal year ending in April 2012. The [private equity] deal [which took the company private in February] valued the company at $837 million which represented 12.1x and 1.8x trailing EBITDA and revenue, respectively.”
From which, Susanto derives the following valuation:
We value Riverbed using a 14.0x EBITDA multiple. We believe RVBD shares are attractively valued and calculate a 2013 PMV of $30 per share and a 2014 PMV of $34 per share. Based on our 2013 estimates, RVBD shares trade at 6.0x EBITDA, and 14.1x non-GAAP P/E. We believe the current weakness in shares provides long- term investors with an attractive entry point.�
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