Why Extreme Networks, Inc. Is Ready to Rebound

Does this analyst make a good case or is it just more noise from Wall Street?

Apr 1, 2014 at 10:16AM

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Extreme Networks, Inc. (NASDAQ:EXTR) popped about 5% this morning after Wunderlich Securities initiated coverage on the networking gear company with a buy rating.

So what: Along with the bullish call, analyst Matthew Robison planted a price target of $9 on the stock, representing about 55% worth of upside to yesterday's close. So while momentum traders might be turned off by Extreme's share-price weakness in recent months, Robison's call could reflect a growing sense on Wall Street that its growth prospects are becoming too cheap to pass up.

Now what: According to Wunderlich, Extreme's risk/reward is rather attractive at this point. "Since purchasing Enterasys, Extreme has gained scale and uniqueness as an enterprise-focused network supplier with both switching and wireless," Robison said. "Growth opportunities are emerging with upgrade cycles: higher caliber wireless with analytics and network access control (NAC), as well as Ethernet fabrics for virtualization and lower latency." When you couple those positive trends with Extreme's forward price-to-sales of about 1, it's tough to disagree with Wunderlich's upgrade.

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Brian Pacampara has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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