Gigamon: Smart Tech Play on Security

04/28/2015 8:00 am EST

Focus: STOCKS

Rob DeFrancesco

Founder, Tech-Stock Prospector

Organizations of all types and sizes are increasingly demanding greater visibility into their IT networks; better network visibility leads to improved monitoring, management, and protection, asserts Rob DeFrancesco, editor of Smart Tech Investor.

Gigamon (GIMO), a leading provider of solutions used to glean intelligence from networking traffic, is on a path of improved execution, aided by ramping demand for security-related offerings and a strong new product cycle.

Gigamon’s solutions—designed to optimize a customer’s physical and virtual infrastructure—gain access to all information in motion across a network, decrypting and de-encapsulating data where necessary.

In the past, Gigamon’s main growth drivers were the cloud, virtualization, and mobility. However, during the past year, enterprise customers have significantly increased their spending on infrastructure security, providing an important new tailwind for Gigamon.

About 50% of all Gigamon deals are now tied to security. In the December quarter, bookings from the government vertical surged 261% year over year, with demand directly tied to security.

Last year, more than 80% of the company’s federal business was associated with or directly related to cyber security initiatives.

At a recent price of $21.36 a share, Gigamon has a market cap of $708 million, 3.6 times the 2015 consensus revenue estimate of $194.5 million (indicating growth of 23.8%) and 3.1 times the 2016 consensus of $225 million.

For 2015, EPS is expected to jump to 38 cents from 12 cents last year. The company’s financial profile is solid: cash and investments total $149 million (representing 20% of the recent market cap), with no debt.

Given Gigamon’s strong underlying momentum (especially related to security use cases), the company over the next few quarters could see upward revenue/earnings estimate revisions along with valuation expansion.

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