Riverbed Technology (Nasdaq: RVBD) rounds the corner into Thursday's first-quarter report with plenty of swagger. Shares of the wide-area networking specialist have climbed back from the 12% overnight drop that the last earnings report caused. Many Wall Street analysts are bullish on the stock, and Fools generally agree. Riverbed is on the rise in our CAPS system, currently sitting at four out of five stars, and fellow Fool Eric Bleeker recently invested real money in the company.
What's not to love about Riverbed, which Eric calls a "best-of-breed" play in a very hot networking niche? Let's find out.
The average analyst expects Riverbed to report flat earnings year over year at $0.20 per share in spite of 14% higher sales projections. All of that is in line with management's guidance. Interestingly, the analyst herd is bunching up at the lower end of Riverbed's own revenue forecast for the full 2012 fiscal year, which assumes a slow start but stronger results in the back half.
You see, the company introduced several major new products early in the year, which tends to slow down sales until customers get a chance to approve Riverbed's new stuff. Fool Tim Beyers, who has owned Riverbed shares for some time, explained that the stock's rebound in February followed from investors realizing that Riverbed wasn't really losing sales in the first quarter -- just pushing them back to later reporting periods.
The company is not only boosting sales at the moment, but also plans to support profit margins at a very strong level in 2012. Gross margins should in fact increase, giving management the freedom to spend more on marketing and innovation without hurting the bottom line.
Riverbed looks mighty expensive based on trailing results, but drops to a very reasonable 21 times forward earnings when you factor in future growth. With that in mind, I'd rather own this growth stock than bumbling sector titan Cisco Systems, hit-and-miss biggie Juniper Networks, or even fellow market darling F5 Networks. Ahead of this report, Riverbed looks more attractive than all of these direct competitors.
I'm actually starting a thumbs-up CAPScall on Riverbed right now. The company should be able to give investors a fresh injection of confidence with an update on how the new products are doing in the market. I don't want to miss out on this likely jump. There are so many megatrends driving demand for high-speed networking today that Riverbed really can't lose.
