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Why Brocade Communications Systems, Inc. Stock Dropped Today

By Jeremy Bowman - Aug 26, 2016 at 1:43PM

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The networking specialist got tripped after its latest earnings report.

Image source: Getty Images.

What: Shares of Brocade Communications Systems, Inc. (BRCD) were slipping today after the company reported third-quarter results and posted weak guidance for the current quarter. As of 12:21 p.m. ET, the stock was down 12.5%.

So what: Brocade's results actually beat estimates, but that seemed to be due to its recent acquisition of Ruckus Wireless. Per-share profit came in at $0.21, down from $0.27 a year, but was better than estimates at $0.17 a share.  Revenue increased 7% from a year ago to $591 million, also topping the consensus at $576.3 million. 

Analysts were unimpressed with the report, however, as JPMorgan Chase lowered its price target to $8.50 from $10, calling it a "disappointing quarter." Deustche Bank also said it expects weak trends in Brocade's core business to continue.

Brocade CEO Lloyd Carney said, "Against the backdrop of a mixed macro environment, we posted solid results, with total revenue at the high end of our outlook range."  

Now what: The networking company said it expected a modest sequential increase in revenue for the current quarter and EPS of $0.21 to $0.23, down from $0.26 a year ago, and in line with the analyst consensus at $0.23. Analysts are also expecting a 9% increase in revenue to $643.5 million. Despite the benefits from the Ruckus acquisition, the general headwinds in Brocade's business seem to warrant today's sell-off.

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