Brocade Communications Systems (Nasdaq: BRCD)
is
riding high todayon buyout rumors.
The Wall Street Journal'susual unnamed sources say
that IT giants like
Hewlett-Packard (NYSE: HPQ) and
Oracle (Nasdaq: ORCL) might buy the little
specialist in data storage networking, and the stock jumped
16% on that report.
There's a lot to like about Brocade. The company has a
solid product portfolio. Within its niche, Brocade is a
serious rival even to networking master
Cisco Systems (Nasdaq: CSCO). In fact,
Brocade's sales
weathered the storms of 2009 better than Cisco, and also
outperformed storage titan
EMC (NYSE: EMC). And that's before you take
Brocade's smart acquisition strategy into account.
After today's 16% pop, Brocade's share price has more than
tripled in 2009. Even so, the stock does not look expensive
by traditional metrics like price to forward earnings, and
the PEG ratio is hovering right around the perfectly
reasonable 1.0 mark. HP and Oracle certainly have shown that
they're willing to cut the occasional deal. If Oracle's
pending acquisition of
Sun Microsystems (Nasdaq: JAVA)
passes antitrust reviews in Europe, then both of the
rumored buyers have large existing relationships with
Brocade. Then again, so does
IBM (NYSE: IBM) -- another cash-rich and
acquisitive tech giant. However, it remains to be seen how
much any of these companies want to increase their newfound
rivalry with Cisco by pushing further into the networking
market.
The
WSJnotes that there is no deal on the table yet, but
Brocade is holding a strong hand and has several potential
suitors. Don't be surprised if you see an actual buyout offer
in the coming weeks. And congratulations if you bought in
the last time we reminded you of Brocade's strength--
you're sitting on a market-beating 42% gain today.
Is Brocade
the next big buyout in tech-- or do you have even
better ideas? Share your wisdom and wealth in the
comments below.
This article was originally published as
Bye-Bye, Brocade!on
Fool.com
Copyright 2009 The Motley Fool, LLC. All rights
reserved.
|