SmartMoney Bets on Blue Coat
06/25/2004 12:00 am EST
"Blue Coat is a fascinating company in the computer-security field," says Gary Alexander. "However, the firm apparently didn’t grow quite fast enough for most analysts last quarter, causing a sharp price drop. We view this as a buying opportunity."
"Blue Coat (BCSI NASDAQ) has tremendous opportunity for growth, as organizations become increasingly dependent on the Internet to communicate with customers, partners, and employees. The Web browser has become the universal medium for communications and information, but it can also lead to increased risks for any enterprise, such as legal liabilities associated with inappropriate Web surfing and content, due to peer-to-peer sharing and video streaming, and productivity losses from non-business-related Web surfing. At latest count, 21 of the 30 Dow companies rely on Blue Coat’s high-performance proxy appliances to control how their employees use the Internet. Some of their new customers include Hyatt, Timberland, and the Green Bay Packers. Blue Coat now has a 33% market share, more than three times its nearest competitor. This market will grow to more than $1.6 billion in 2007, and Blue Coat could even increase its market share from here.
"The company is on an odd fiscal-year cycle, ending April 30. For the third quarter, ending January 31, sales revenue leaped over 60% to $19.1 million, from $11.7 million in the same year-ago quarter. That drove the price up to $60. Blue Coat’s fourth fiscal quarter (ended April 30) was excellent, with revenues up 79% from the same quarter in 2003, and up 10% from the blockbuster quarter that preceded it. However, the outcome was less than analysts predicted, so the stock fell 25% the next morning. Excluding certain costs, Blue Coat earned $0.20 a share in the final fiscal 2004 quarter. Wall Street had expected $0.24. The company also forecast $0.20 for the current quarter (the opening quarter of fiscal 2005). The skittish market traders have created a buying opportunity for us. Only three analysts follow the company; their consensus earnings estimates are for a triple next year, from $0.35 this year to $1.07 next year. Take advantage of Wall Street’s myopia and buy Blue Coat up to $35 for a potential double within one year."