11.20.07 

bcsi: THE STORY GETS EVEN BETTER
Blue Coat reported FQ2 EPS of $0.30 on $73.4M in sales which easily beat consensus expectations of $0.24 EPS on sales of $69.0M; moreover, the company issued FQ3 guidance well ahead of consensus expectations. Impressive sales were again driven by success in the WAN optimization market with the company's MACH5 initiative. With WAN optimization bookings up 31% sequentially and a pipeline north of $100M, the company's multi-functional platform of combining security and policy with WAN optimization is resonating with customers, in our view. Just as important, the company is finally showing meaningful operating leverage, and we expect this trend to continue. Given the scope of the market opportunity, the competitive differentiation and increasingly consistent execution, we believe upside to estimates can continue. We reiterate our Buy rating and $60 price target. Contact Us for Full Report - PDF

10.18.07 

bcsi: THE BATTLE FOR THE BRANCH - GAME ON; TARGET GOES TO $60
We are introducing fully taxed C2009 estimates and raising our price target to $60 following recent investor meetings with management and another round of channel checks. Our meetings with management yielded additional insight into the outlook for the WAN optimization market as a whole, the competitive landscape, and Blue Coat's differentiated solution. While we believe that Riverbed (RVBD: Buy) will continue to be the leader in the market, we believe that Blue Coat will have considerable success moving forward given the scope of the market opportunity and the company's competitive differentiation and solid execution. Our new estimates and price target reflect both our near and longer-term optimism surrounding Blue Coat's MACH5 business. Our Buy rating and $60 price target reflect a sum of parts analysis as well as 35x our C2009 operating income assumption, plus ~$3/share in cash. Contact Us for Full Report - PDF

10.04.07 

bcsi: FQ2 CHECKS; BUSINESS ON TRACK
We reiterate our Buy on BCSI following our recent round of checks which suggest to us that business is on track. We believe the company continues to experience improving success in the Wide Area Data Services (WDS) market with its MACH5 initiative. In our view, Blue Coat has become a meaningful player in the WDS space, joining a small club of players competing over what is commonly viewed as a very large opportunity. Moving forward, we believe the company is well positioned to grow its share of the expanding market while benefiting from continued strength in its core Proxy SG and web filtering business. Contact Us for Full Report - PDF

08.22.07 

bcsi: SURFING THE WDS WAVE IN STYLE; INCREASING PRICE TARGET TO $90; REITERATING BUY RATING
Blue Coat reported FQ1 results well above expectations, beating our and Street estimates on the top and bottom line and issuing FQ2 guidance considerably ahead of expectations. Impressive sales were driven by improving success in the Wide Area Data Services (WDS) market with the company's MACH5 initiative. In our view, the implications of the company's impressive results extend beyond the scope of typical earnings upside surprises. We believe that Blue Coat has become a meaningful player in the WDS space, joining a small club of players competing over what is commonly viewed as a very large opportunity. Moving forward, we believe the company is in a great position to grow its share of the expanding market while benefiting from continued strength in its core Proxy SG and web filtering business. We are reiterating our Buy rating on BCSI shares and are raising our price target to $90, based on 35x our F2009 operating income per share estimate, plus $6 cash per share. Contact Us for Full Report - PDF

07.13.07 

bcsi: CHECKS INDICATE ROBUST DEMAND TRENDS; MACH5 MOMENTUM CONTINUES; INCREASING ESTIMATES AND TARGET TO $65
Following our recent round of channel checks, we believe demand within the wide area data services (WDS) market continues to be robust and that Blue Coat's MACH5 initiative continues to build momentum. We uncovered new developments including a win at Fidelity Investments and the resumption of the MACH5 rollout at UBS following a slight delay. We expect to see a meaningful ramp in MACH5 revenue, continued strength in its core proxy security business, and more signs of operating leverage in the model in FQ1. Accordingly, we are raising our estimates and price target to $65 from $55 based on 30x our revised F2009 (April) operating income assumption ($2/share) plus ~$5/share in cash. Contact Us for Full Report - PDF

06.08.07 

bcsi: MEETING WITH MANAGEMENT TEAM REINFORCES BULLISH VIEW
We reiterate our Buy rating following a recent investor meeting with President and CEO Brian NeSmith and CFO Kevin Royal. We continue to believe that the Company's WDS platform is in a great position to grow its share of the expanding WDS market and will eventually prove to be one of the leaders in the market. Coming off of solid FQ4 results, we are bullish around F2008. We expect to see a meaningful ramp in MACH5 revenue, continued strength in its core proxy security business, and some operating leverage in the model. We believe that the risk/reward continues to be compelling at these levels and therefore reiterate our Buy rating and $55 price target based on 30x our C2008 operating income assumption ($1.62/share) plus ~$5/share in cash. Contact Us for Full Report - PDF

05.30.07 

bcsi: SOLID FINISH TO THE YEAR; LOOKING FOR EVEN MORE IN F2008
Blue Coat reported solid FQ4 results, confirming our expectations surrounding the uptake of its WDS platform and the strength in its core Proxy SG and web filtering businesses. News on the MACH5 initiative was especially encouraging, with bookings and pipeline better than our expectations. With its relatively expensive options review and restatement ordeal comfortably in the past and with initial investments in the WDS initiative showing much promise, we believe that F2008 will be a watershed year for the Company. Moving forward, we believe the Company is in a great position to grow its share of the expanding WDS market and at the same time benefit from solid execution with its core businesses. Looking out towards the next several quarters, we believe the possibility for operating leverage is substantial, and thus believe that the risk/reward is compelling at these levels. Accordingly, we are reiterating our Buy rating and our $55 price target based on 30x our C2008 operating income assumption ($1.62/share) plus ~$5/share in cash. Contact Us for Full Report - PDF

05.16.07 

bcsi: FQ4 AHEAD OF PLAN; NEW COLOSSAL MACH5 WINS IN THE WORKS; INCREASING ESTIMATES AND RAISING PRICE TARGET TO $55
We recently completed a round of checks and uncovered key data points related to Blue Coat's MACH5 initiative and its fiscal fourth quarter performance. First, we believe that the Company's MACH5 pipeline continues to grow as the Company landed several more wins during FQ4, including two Europe-based global financial services providers, a US government agency, and a US healthcare provider. Second, we believe that the start of the large MACH5 rollout at UBS has been slightly delayed from June/July to September/October due to budget constraints. We remain confident, however, that the deal has not been lost and that additional MACH5 wins should be enough to offset the delay. Overall, we believe Blue Coat closed FQ4 on a high note and will post upside to consensus estimates of $52.9M in revenue and $0.27 in EPS. Accordingly, we are raising our estimates and our price target to $55 from $45 based on a 30x multiple applied to our CY:08 operating income assumption ($1.68/share) plus ~$5/share in cash. Contact Us for Full Report - PDF

03.29.07 

bcsi: OPTION REVIEW COMPLETED; WDS OPPORTUNITY IS FOR REAL; MASSIVE OPERATING LEVERAGE LEFT; REITERATING BUY RATING
Yesterday after the close, Blue Coat announced the completion of its financial restatement related to the option review. Overall, we have made the following changes to our model: 1) historical EPS estimates for the first three quarters of F2007 move meaningfully higher and 2) forward revenue estimates remain unchanged, while forward EPS estimates move slightly higher reflecting better than expected gross margins offset somewhat by continued investments. FQ4:07 guidance of $51-54M in revenue and essentially in line, with consensus EPS of $0.21-0.30 reflecting ~$5M in additional spend to fuel the early success the Company is witnessing in the WDS market. We believe these investments will enable the Company to drive the continued adoption of its MACH5 offering, post upside to consensus estimates, and ultimately allow the Company to reach its long-term operating model of 76.5% gross margins and 25% operating margins. Overall, we are pleased with the progress made over the last few quarters and believe that, at current levels, investors get the Company's gateway proxy appliance/URL filtering business at a compelling valuation of ~2x our CY:08E EV/revenue estimate and essentially a free call option on the Company's WDS business, where precedent M&A transactions within the overall application delivery infrastructure (ADI) space have been completed for an average take-out of ~6x forward revenues. Based on the completion of the option review and our view that the Company's visibility continues to improve, we are reiterating our Buy rating and $45 price target, which is based on a 25x multiple applied to our CY:08 operating income assumption per share plus ~$5/share in cash. Contact Us for Full Report - PDF

03.09.07 

bcsi: REPORTS RECORD FQ3:07 REVENUE AND PROVIDES IMPRESSIVE GUIDANCE; THE BEST PART - THEY HAVE A $50M WDS PIPELINE; INCREASING PRICE TARGET TO $45 AND REITERATING BUY RATING
Yesterday after the close, Blue Coat reported record FQ3:07 revenue of $47.1M, which was consistent with the recently upwardly revised guidance range of $45.5-47.5M and ahead of our $46.5M estimate. The Company's guidance of $51-54M in revenue was equally impressive, in our view, and well ahead of Street expectations. We believe that this record performance was driven by: 1) strong growth in the core ProxySG business; 2) better than expected purchasing activity from existing NetCache customers, 3) an accelerated uptake of its Wide Area Data Services (WDS) offering with a pipeline that now stands at $50M, and 4) the transition of its URL filtering business from a ratable revenue model to a perpetual license model. At current levels, we believe that investors get the Company's gateway proxy appliance/URL filtering business at a compelling valuation of ~2x our CY:08E EV/revenue estimate and essentially a free call option on the Company's WDS business, where precedent M&A transactions within the overall application delivery infrastructure (ADI) space have been completed for an average take-out of ~6x forward revenues. Based on this record performance and our view that the Company's visibility into both businesses continues to improve, we are reiterating our Buy rating and raising our price target from $35 to $45, which is based on a 25x multiple applied to our CY:08 operating income assumption ($1.60/share) plus ~$5/share in cash. Contact Us for Full Report - PDF

03.08.07 

bcsi: EARNINGS PREVIEW; EXPECT FQ3:07 IN LINE WITH PRE-ANNOUNCEMENT AND STRONG GUIDANCE; REITERATE BUY
Blue Coat Systems will report its January quarter results today after the market close. We believe the Company will post solid results in line with its recently raised FQ3:07 guidance of $45.5-47.5M in revenue and offer strong guidance ahead of our FQ4:07 estimate of $47M and closer to $48-52M. During the quarter, we believe the Company benefited from 1) growth in the core ProxySG business; 2) better than expected contribution from Netcache, 3) an accelerated uptake of its MACH5 WDS offering; and 4) the transition of its URL filtering business from a ratable to a perpetual license model. We believe the traction gained during the quarter sets the stage for upside opportunities in 2007 and beyond. We are reiterating our Buy rating and $35 price target on BCSI shares. Contact Us for Full Report - PDF

02.09.07 

bcsi: PUT THE BLUE COAT BACK ON; RAISES REVENUE GUIDANCE; REITERATE BUY RATING
Yesterday after the market close, Blue Coat Systems (BCSI) issued a press release raising its revenue guidance for the recently closed January quarter ahead of its previously issued guidance and our and consensus estimates. During the quarter, we believe the Company successfully 1) grew the core ProxySG business; 2) accelerated the uptake of its MACH5 WDS optimization offering into more accounts than previously expected; and 3) transitioned its URL filtering business from a ratable to a perpetual license model. We are reiterating our Buy rating and $35 price target on BCSI shares, based on a 25x multiple applied to our C2007 operating income assumption ($1.20/share), plus $4.50/share in cash. Contact Us for Full Report - PDF

02.02.07 

bcsi: MORE MACH5 WINS AND NOW A DISRUPTIVE FORCE WITHIN THE URL FILTERING MARKET; REITERATING BUY RATING
Over the past several weeks, we have uncovered several data points on Blue Coat Systems that make us incrementally more positive on the name as the Company exits its FQ3:07 and prepares to report earnings. More specifically, we believe the Company has 1) successfully accelerated the uptake of its MACH5 WDS optimization offering into more accounts than previously expected, and 2) become a disruptive force within the URL filtering market with the transition of its URL filtering business from a ratable to a perpetual license model that includes a one time per user fee plus a minimal ongoing support fee. We view both events positively and believe they will begin bearing a material top line and bottom line impact beginning in FQ4:07 while setting the stage for continued growth and market share gains throughout the remainder of C2007 and beyond. Given the existing momentum we feel the Company has generated throughout FQ3:07, we urge investors to create or add to positions in BCSI shares ahead of the earnings report, which we expect to take place in late-February. We are reiterating our Buy rating on BCSI shares at a $35 price target based on a 25x multiple applied to our C2007 operating income assumption ($1.21/share), plus $4.50/share in cash. Contact Us for Full Report - PDF

01.23.07 

bcsi: UBS WIN LARGER THAN WE ORIGINALLY ESTIMATED; REITERATING BUY RATING
We recently completed a round of checks and uncovered a couple of key data points that give us increased confidence in Blue Coat's growth strategy for C2007. First, we believe the win at UBS is much larger than we had originally estimated and is in the $8-12M range over the next 12-18 months, compared to our prior estimate of $2-3M. Second, following the successful acquisition of the NetCache product line from NetApp, we believe the Company has established a formal strategy to sell into customers of NetApp's SnapMirror replication software. Given the momentum we believe the Company is witnessing entering C2007, we continue to rate BCSI shares a Buy with a $35 price target based on a 25x multiple applied to our C2007 operating income assumption ($1.21/share), plus $4.50/share in cash. Contact Us for Full Report - PDF

01.03.07 

bcsi: ANOTHER QUARTER ON TRACK; WDS GAINS CONTINUE
During the weeks leading up to the New Year, we completed a series of checks with key Blue Coat VARs, distributors, and partners. Based on these checks, we remain confident that Blue Coat 1) is on track to meet and possibly exceed consensus expectations for the January quarter, and 2) continues to make gains and capture mindshare with its Wide Area Data Services (WDS) products. Beyond the strength we believe is being witnessed with its WDS products, we feel the Company's core proxy appliance products remain strong, the WebFilter offering continues to gain traction, and the NetCache acquisition continues to increase the Company's up sell opportunity. Based on this and our overall positive stance on Blue Coat Systems' long-term prospects, we are reiterating our Buy rating $35 price target on BCSI shares, based on a 25x multiple applied to our C2007 operating income assumption ($1.21/share) plus $4.50/share in cash. Contact Us for Full Report - PDF

11.30.06 

bcsi: MORE MACH5 WINS IN THE WORKS; REITERATING BUY RATING
Over the past few days, we have uncovered several key MACH5 WAN optimization/WAFS deals that we believe Blue Coat Systems is near closing or has won in recent weeks. While we believe that these deals will potentially contribute to near-term revenues, we feel the true opportunity lies in the longer-term when these deals may translate into multi-million dollar opportunities. Overall, we believe that Blue Coat Systems' ability to continue winning MACH5 business is only one of several indications that the Company's business is progressing according to plan. More specifically, we believe the core proxy appliance segment continues to be strong, the WebFilter offering is gaining traction, and NetCache is increasingly enabling the Company to upsell to new and existing customers. Based on these wins and our overall positive sentiment on Blue Coat Systems' long-term prospects, we are reiterating our Buy rating $35 price target on BCSI shares, based on a 25x multiple applied to our C2007 operating income assumption ($1.21/share) plus $4.50/share in cash. Contact Us for Full Report - PDF

11.21.06 

bcsi: REPORTS SOLID OCTOBER QUARTER AND PROVIDES IN-LINE GUIDANCE; REITERATING BUY RATING
Yesterday after the market close, Blue Coat Systems reported limited FQ2:07 results. Revenue came in comfortably ahead of our and consensus estimates, but the Company was unable to provide full financial statements due to the ongoing options review. While we believe the options investigation creates an overhang on BCSI shares, we continue to believe that long-term fundamentals hold solid, particularly with continued strength in the core proxy appliance segment, accelerating uptake of the MACH5 WAN optimization solution, increased traction of the competitively priced WebFilter offering, and upsell opportunities from the NetCache acquisition. Based on this quarter's solid results and our positive outlook on Blue Coat's prospects, we are reiterating our Buy rating $35 price target, based on a 25x multiple applied to our C2007 operating income assumption ($1.21/share) plus $4.50/share in cash. Contact Us for Full Report - PDF

11.08.06 

bcsi: EXPECT SOLID QUARTER AHEAD OF PLAN; KEY MACH5 WIN SETS THE STAGE FOR C2007; INCREASING PRICE TARGET TO $35
Blue Coat Systems recently closed its FQ2:07 and is expected to report earnings later this month. We believe the quarter tracked ahead of plan and the Company is poised to post revenue results ahead of our and consensus estimates. Our checks with Blue Coat Systems' customers, channel partners and industry contacts suggested that the Company gained market share in the gateway proxy appliance and URL filtering market and increased traction with its WAN optimization/WAFS offering, including a key MACH5 win at UBS. At current levels, we believe investors get the Company's gateway proxy appliance/URL filtering business at near trough valuation levels of 1.5x CY:07E EV/revenue and essentially a free call option on the Company's WAN optimization/WAFS business, which we believe is poised for explosive growth over the next year. Based on our view that Company's visibility into both businesses has meaningfully improved, we are reiterating our Buy rating and increasing our price target to $35 (from $28), representing a 25x multiple applied to our C2007 operating income assumption plus ~$4/share in cash. Contact Us for Full Report - PDF

10.03.06 

bcsi: NETCACHE PROVIDES THE BOOST; INCREASING ESTIMATES AND PRICE TARGET; REITERATE BUY RATING
Yesterday after the market close, Blue Coat updated its revenue guidance to reflect the recently closed NetCache acquisition. Based on management's commentary we believe the acquisition will add at least $40M in revenue and $0.50 in EPS to our CY:07 estimates. Accordingly, we are raising our estimates and increasing our price target to $28 from $21, and encourage growth-oriented investors to purchase BCSI shares. We continue to believe that Blue Coat represents a way to play the explosive growth within the WAN optimization/WAFS market and with BCSI shares trading at a near trough valuation of ~1x forward EV/Revenue based on our revised estimates, we view Blue Coat's valuation as compelling. Our Buy rating on BCSI shares and $28 price target is based on a peer group average of a 20x multiple applied to our C2007 operating EPS assumption of $1.23 plus ~$3/share in cash. Contact Us for Full Report - PDF

10.02.06 

bcsi: THE NETCACHE BOOST; REITERATE BUY RATING
Tonight after the market close, Blue Coat will update its revenue guidance to reflect the recently closed NetCache acquisition. Given that NetCache is primarily an asset buy, we believe the acquisition will add an accretive revenue stream of at least $40M in CY:07. We expect management to leverage this purchase and ramp operating expenses accordingly to help drive revenue growth and therefore do not expect every $1M in incremental revenue to add $0.05 EPS as historically has been the case. We do, however, expect to comfortably raise our estimates and price target following tonight's call. We also recently completed a round of channel checks that lead us to believe the core proxy business and WAN optimization/WAFS revenue is tracking in line with our October quarter estimates. In sum, we continue to believe that Blue Coat represents a way to play the explosive growth within the WAN optimization/WAFS market and with BCSI shares trading at a near trough valuation of ~1.5x forward EV/Revenue excluding the contribution from the NetCache product line, we view Blue Coat's valuation as compelling. We are reiterating our Buy rating and $21 price target on BCSI shares. Contact Us for Full Report - PDF

09.12.06 

bcsi: CLOSES NETCACHE; TO RESTATE FINANCIALS DUE TO OPTIONS
Yesterday after the market close, Blue Coat Systems announced that it has completed the acquisition of the assets of NetCache from Network Appliance for a financial consideration of $23.9M in cash and 360K BCSI shares. In a separate announcement, the Company stated that its voluntary review of historical stock option granting practices by an independent committee has preliminarily determined that the actual measurement dates for certain past stock option grants likely differ from the recorded grant dates, which will lead to restatements of prior financial statements. While the review is not yet complete, the Company expects to incur additional non-cash expenses as well as legal and professional expenses related to the review and restatement process. We believe that both these events have been anticipated by the investment community, and with BCSI shares trading at a near trough valuation of ~1x forward EV/Revenue excluding the contribution from the NetCache product line (~$40M in CY:07), we are maintaining our Buy rating. Contact Us for Full Report - PDF

08.17.06 

bcsi: REPORTS LIMITED FQ1:07; OPTION REVIEW CREATES OVERHANG; NETCACHE ACQUISITION SHOULD PROVIDE A BOOST WHILE THE APPLICATION DELIVERY INFRASTRUCTURE GETS STARTED
Yesterday after the market close, Blue Coat Systems reported limited FQ1:07 results. Revenue was a tad shy of our and consensus estimates and the Company was unable to provide full financial statements for the quarter due to an ongoing option review. While we believe the option investigation creates an overhang on BCSI shares, we continue to believe the long-term fundamentals hold solid, particularly with the move into the application delivery infrastructure market, the Company's pending acquisition of the NetCache product line from Network Appliance, and the recent equity investment made by Francisco Partners and Sequoia Capital at a 17% premium to the market at the time of the announcement. Furthermore, BCSI shares are trading at a trough valuation of 1x forward EV/Revenue excluding the contribution from the NetCache product line (~$40M in CY:07). We are, therefore, maintaining our Buy rating. Contact Us for Full Report - PDF

07.14.06 

bcsi: ANOTHER RIP IN THE BLUE COAT; STOCK OPTION BACKDATING REVIEW OVERSHADOWS APPLICATION DELIVERY INFRASTRUCTURE OPPORTUNITY; MAINTAINING BUY RATING
This morning, Blue Coat Systems announced that it is currently conducting a review of its historical practices for the granting of stock options. The review is being undertaken by a committee of independent directors and is assisted by accounting and legal counsel. The committee has announced a preliminary finding that the dates used to record grants for financial accounting purposes differ from the actual dates of such awards. The Company further announced that it has notified the SEC of its inability to file a timely Form 10-K, and that it is withdrawing previously issued guidance for the July quarter (FQ1:07). While we are clearly concerned with these developments and believe they create an overhang on BCSI shares, we believe the long-term fundamentals hold solid, particularly with the move into the application delivery infrastructure market, the Company's recent acquisition of NetCache and the investment made by top notch investment firms at a 17% premium to the market at the time of the announcement. Furthermore, BCSI shares are trading at a trough valuation of 1x forward EV/Revenue. We are, therefore, maintaining our Buy rating. Contact Us for Full Report - PDF

06.26.06 

bcsi: ANNOUNCES PURCHASE OF NETCACHE PRODUCT LINE AND STRATEGIC INVESTMENT BY TOP NOTCH INVESTMENT FIRMS
Last Friday, Blue Coat Systems announced it had signed an agreement to purchase the NetCache product line from Network Appliance (NTAP: Not Rated). Network Appliance has been the number two player in the gateway proxy appliance market behind Blue Coat Systems. We believe Blue Coat Systems' purchase of the NetCache product line will allow the Company to further extend its lead in the gateway proxy appliance market and build upon an already strong start in the emerging application delivery infrastructure market. The Company also announced a strategic investment in Blue Coat Systems by investment firms Francisco Partners and Sequoia Capital. We believe this investment and new relationship will help Blue Coat Systems foster new partnerships and strengthen what it is already doing in the application delivery infrastructure space. Overall, we view these events positively and believe the Company continues to strategically put the pieces into place to maintain its market leadership position in the gateway proxy appliance market and become a meaningful player in the application delivery infrastructure market. We are reiterating our Buy rating and $21 price target on BCSI shares. Contact Us for Full Report - PDF

05.25.06 

bcsi: REPORTS A MIXED QUARTER AND GUIDANCE; RECORD WEBFILTER ADOPTION IS A GOOD THING; MAINTAINING BUY RATING
Yesterday after the market close, Blue Coat Systems reported FQ4:06 results. Results were mixed, with revenue ahead of guidance and consensus and EPS within guidance but below consensus. The bulk of revenue was derived from the Company's Proxy SG proxy appliances while the uptake of the Company's WebFilter continued at the expense of third-party offerings and hampered recognizable revenue, but increased deferred revenue to record levels. For July, management provided guidance with revenue slightly below consensus but EPS well short, reflecting the Company's continued investments in the application delivery infrastructure market and the accelerated integration of the recent Permeo acquisition. While we are disappointed with the overall quarterly performance, we continue to believe that the realignment of sales and marketing priorities, coupled with the increased focus on the application delivery infrastructure market, will enable the Company to sustain revenue growth closer to a 20% rate going forward. We are maintaining our Buy rating and lowering our price target to $21 from $25. Our price target is based on a peer group average of a 21x multiple applied to our 2007 operating income/share assumption of $0.89 plus ~$5/ share in cash. Contact Us for Full Report - PDF

05.24.06 

bcsi: APRIL QUARTER EARNINGS PREVIEW; EXPECT IN-LINE RESULTS AND GUIDANCE; APPEARS TO HAVE REGAINED ITS FOOTING
Blue Coat Systems will announce FQ4:06 (April) results today after the market close. We believe that the Company will meet Street estimates as well as guide its FQ1:07 in line with the recently revised FQ1:07 (July) consensus estimates. We believe the Company's core proxy (SG) product line spearheaded growth while the uptake of the Company's WebFilter at the expense of third-party offerings continued at a healthy pace and hampered recognizable revenue but increased deferred revenue. Following a disappointing FQ3:06 (January), we believe that the Company has regained its footing and that the realignment of sales and marketing priorities, coupled with the increased focus on the application delivery infrastructure market, will enable the Company to sustain revenue growth closer to a 20% rate going forward. We remind investors, however, that for the last eleven quarters, BCSI shares have moved an average +/- ~20% the next trading day following the earnings call. Our Buy rating and $25 price target reflects a 21x multiple applied to our 2007 operating income/share assumption of $0.97 plus ~$5/ share in cash. Contact Us for Full Report - PDF

02.15.06 

bcsi: REPORTS IN LINE WITH SHORTFALL; MAINTAINING BUY RATING
Yesterday after the market close, Blue Coat Systems announced its FQ3:06 results at the high end of the revised guidance it provided during the Company's negative pre-announcement on February 6. The Company faced considerable challenges during the quarter, including the push-out of two large federal Government orders, weakness in Japan and Taiwan, channel execution issues, and an overall slowdown in the gateway proxy appliance market. As a result, management anticipates less than stellar growth prospects during the coming quarter. Nevertheless, we believe that a realignment of sales and marketing priorities, coupled with the increased focus on the application delivery infrastructure market, will enable the Company to sustain growth at a ~20% growth rate over the next year. With shares trading at ~$20/share in after hours trading and our view that these levels represent a floor valuation, ~1.5x our CY:06 EV/Revenue estimate, we are maintaining our Buy rating and introducing a new price target of $25. Contact Us for Full Report - PDF

02.06.06 

bcsi: ANNOUNCES EARNINGS SHORTFALL; NO EXPLANATION GIVEN; ESTIMATES AND RATING UNDER REVIEW
This morning before market open, Blue Coat Systems announced that its revenue and earnings for FQ3:06 would fall short of expectations. The Company's new guidance calls for revenue and EPS of $34.5-35.1M and $0.15-0.19, respectively, and compares to our original estimate of $39.3M in revenue and $0.35 EPS. Given limited information outside of what was provided in the press release, we can not provide a recommendation and are, therefore, putting our estimates and rating under review. Contact Us for Full Report - PDF

02.03.06 

bcsi: TIME TO PUT THAT BLUE COAT BACK ON; REITERATING BUY RATING
Blue Coat Systems ended its FQ3:06 (January) quarter earlier this week. While the Company has yet to announce an earnings release date, our channel checks indicate that the demand for Blue Coat's proxy appliances throughout the quarter was robust. Based on this, we believe that the Company is likely to hit or slightly exceed the high end of its guidance. We expect that solid performance was driven by broad-based strength across all geographies, with the ProxySG product line continuing to spearhead growth. Moreover, we view the ProxyAV product line, the recently introduced branch office proxy appliances, and the spring release of SGOS 5.1 as drivers for growth heading into CY:06 and beyond. We also expect the Blue Coat WebFilter uptake at the expense of third party revenue to continue as expected resulting in increased deferred revenue and improved gross margins and cash flow over the longer-term. In our view, Blue Coat Systems possesses many of the elements that growth-oriented investors are seeking, including revenue growth in excess of 30%, significant operating leverage, a strong product roadmap targeted at the application acceleration and security markets, and a clear market share leadership position in a rapidly growing market. Contact Us for Full Report - PDF

01.04.06 

bcsi: ACQUIRES PERMEO TECHNOLOGIES; REITERATING BUY RATING
Yesterday, Blue Coat Systems announced the acquisition of Permeo Technologies. This acquisition further solidifies our view that Blue Coat Systems continues to strategically put the pieces into place to extend its market leadership position in the nascent proxy appliance market, a market we believe will materialize in force over the next several quarters and reach a whopping $5-10B over time. We are reiterating our Buy rating and continue to believe BCSI shares represent a core holding for growth-oriented investors seeking meaningful revenue growth, operating margin expansion, a strong product roadmap, and a clear market share leader in a rapidly growing market (~30%+). Our Buy rating and $50/share target is based on ~35x our CY:06 EPS estimate of $1.35. Contact Us for Full Report - PDF

12.09.05 

bcsi: ANALYST DAY HIGHLIGHTS; REITERATE BUY
Yesterday, Blue Coat hosted its annual Analyst Day at its new headquarters in Sunnyvale, California. Managements' impressive presentations further solidified our view that Blue Coat Systems continues to strategically put the pieces into place to extend its market leadership position in the nascent proxy appliance market, a market we believe will materialize in force over the next several quarters and could now, with the branch office initiative, reach a whopping $5-10B over time. We are reiterating our Buy rating and continue to believe BCSI shares represent a core holding for growth-oriented investors seeking meaningful revenue growth, operating margin expansion, a strong product roadmap, and a clear market share leader in a rapidly growing market (~30%+). Our Buy rating and $50/share target is based on ~30x our CY:06 EPS estimate of $1.65. Contact Us for Full Report - PDF

11.16.05 

bcsi: A SMALL RIP IN THE COAT BUT NOTHING THAT CAN'T BE FIXED
Yesterday after the market close, Blue Coat Systems reported a mixed October quarter with revenue just shy of our estimate, but EPS ahead of our estimate. Guidance was mixed as well with revenue slightly below, but EPS comfortably ahead of our and consensus estimates. We believe the details of the quarterly report, however, further solidify our view that Blue Coat Systems continues to strategically put the pieces into place to maintain its market leadership position in the nascent proxy appliance market, a market we believe will materialize in force over the next several quarters and could reach $2B+ over time. We would use any weakness in shares this morning as a buying opportunity as we continue to believe Blue Coat Systems possesses many of the elements growth-oriented investors are seeking including revenue growth, operating margin expansion, a strong product roadmap, and a clear market share leadership position in a rapidly growing market. We are reiterating our Buy rating and $50/share target based on ~30x our revised CY:06 EPS estimate of $1.65. Contact Us for Full Report - PDF

11.15.05 

bcsi: IT'LL BE 'ENOUGH' AND WE'RE STILL BUYERS
Today, after the market close, Blue Coat Systems will report its FQ2:06 (October) results. While BCSI shares have appreciated ~30% over the last month and ~180% YTD, we continue to recommend BCSI shares. We expect the Company to post upside to our estimates and provide guidance for FQ3:06 (January), its seasonally strongest quarter, ahead of current consensus; this, we believe, will be 'enough' to satisfy investor expectations. Further, Blue Coat Systems possesses many of the elements growth-oriented investors are seeking, including revenue growth, operating margin expansion, a strong product roadmap targeted at the application acceleration and security market, and a clear market share leadership position in a rapidly growing market. Contact Us for Full Report - PDF

09.14.05 

bcsi: ON THE WAY TO FIFTY AND FIFTY... AND $50; FEELS A LOT LIKE LAST QUARTER; INCREASING PRICE TARGET TO $50
We recently completed an initial round of checks with several Blue Coat customers, partners, resellers and our industry contacts. Based on our discussions, we believe Blue Coat's October quarter feels a lot like last quarter with a handful of new wins and is on track to meet the high-end of management's guidance and our published estimates with potential for upside if the business continues at this pace throughout the remainder of the quarter. With plans to ramp to 50+ sales teams by year-end, we believe it is not far fetched to see a $50M quarterly run rate materialize by January 2007. Blue Coat possesses many of the elements we believe growth oriented investors are seeking including revenue growth, operating margin expansion, a strong product roadmap, and a clear market share leadership position in a rapidly growing market. We are reiterating our Buy rating and increasing our price target to $50 from $44. Contact Us for Full Report - PDF

08.17.05 

bcsi: ON THE WAY TO FIFTY AND FIFTY
Yesterday, after the market close, Blue Coat Systems reported the best quarter in the Company's history with results ahead of our Street-high estimates and comfortably ahead of consensus. These results underscore Blue Coat's market leadership position in the nascent proxy appliance market, a market we believe will materialize in force over the next several quarters and could reach $2B+ over time. We continue to believe Blue Coat possesses many of the elements growth oriented investors are seeking including revenue growth, operating margin expansion, a strong product roadmap, and a clear market share leadership position in a rapidly growing market. With plans to ramp to 50+ sales teams by year-end, we believe it is not far fetched to see a $50M quarterly run rate materialize within five quarters. With BCSI shares trading at 21x our revised C2006 EPS estimate of $1.46 and the aforementioned, we are raising our price target to $44 from $38, based on 30x our revised C2006 EPS estimate, and would be buyers even with shares up 10%+ in after-hours. Contact Us for Full Report - PDF

06.28.05 

bcsi: CHECKS INCREASE CONFIDENCE IN QUARTER; INCREASING ESTIMATES AND PRICE TARGET
We are reiterating our BUY rating, increasing our price target to $38 from $34, and increasing our estimates following the completion of a round of checks with several Blue Coat customers, partners, resellers and our industry contacts. Given these checks, we believe that Blue Coat's July quarter is tracking ahead of plan and the Company's clear leadership position in the emerging proxy appliance market should allow it to continue to capitalize on the explosive growth (~30% CAGR) in this market for the next few years. We view BCSI shares as compellingly valued exposure to the powerful trends in the emerging proxy appliance market at a very reasonable 21x our revised CY:06 EPS estimate, given our projections which call for over 70% earnings growth in CY:05 and 47% in CY:06. Contact Us for Full Report - PDF

06.03.05 

bcsi: REPORTS RECORD QUARTER AND GUIDANCE THAT EXCEEDS OUR WILDEST EXPECTATIONS; REITERATING BUY RATING
Yesterday, after the market close, Blue Coat Systems announced FQ4:05 results at the high end of the positive preliminary announcement in early May and provided guidance well ahead of Street estimates. While management could not provide any further details into the ongoing non-public SEC investigation and we believe this will continue to have an overhang on BCSI shares, we believe the company remains well-positioned to leverage its market leadership position in the nascent proxy appliance market, one which we see posting explosive growth of at least 30% for the next several years. We continue to view BCSI shares as attractively valued, currently trading a mere 18x our revised C2006 EPS estimate (even with shares up 20% in after-hours), given our projections which call for over 47% earnings growth in 2006 and at least 30% in 2007 and 2008. We also expect that the potential for upside results over the next year could come from a variety of sources including new products targeted at the application traffic management market. We are reiterating our Buy rating and revising our price target to $34/share based on 25x our revised C2006 EPS estimate of $1.35. We believe a closed SEC investigation would warrant a meaningfuly higher multiple and price target closer to the company's long-term EPS growth rate of 30-35% implying $40-47/share. Contact Us for Full Report - PDF

05.31.05 

bcsi: IF BLUE COAT DOUBLED ITS ADDRESSABLE MARKET, WOULD ANYONE NOTICE?
Last week, Blue Coat Systems introduced the ProxySG 200, a proxy appliance that enables enterprises to extend the Web policy controls in place at headquarters out to the branch office. With approximately four million branch offices worldwide, we believe this product announcement has the potential to at least double Blue Coat's addressable market opportunity to approximately $2 billion in 2008. In addition, we believe successful trials could translate into multi-million dollar builds over the next year. We also expect the Company to post FQ4:05 results in line with the positive preliminary report and offer solid guidance when it officially reports results Thursday, June 2, after the market close. We are reiterating our Buy rating and view the risk/reward profile at current levels as compelling. Contact Us for Full Report - PDF

05.06.05 

bcsi: ANOTHER POSITIVE PRELIMINARY REPORT; REITERATE BUY
Yesterday, after the market close, Blue Coat Systems announced preliminary FQ4:05 (April) results comfortably ahead of previous expectations. While management could not provide any further details into the ongoing non-public SEC investigation and we believe this will continue to have an overhang on BCSI shares, we believe Blue Coat remains well-positioned to leverage its market leadership position in the nascent proxy appliance market, one which we see posting explosive growth for the next several years. We continue to view BCSI shares as attractively valued, currently trading at 17x our C2006 EPS estimate, even in light of the ongoing SEC investigation given our view for strong upside potential from a variety of sources including new products, international penetration, and the addition of major new tier-one customers. We reiterate our Buy rating. Contact Us for Full Report - PDF

03.30.05 

bcsi: CHECKS POINT TO ANOTHER SOLID QUARTER; REITERATE BUY
We are reiterating our Buy rating and $30/share target following the completion of another round of checks with Blue Coat customers, partners, and our industry contacts. Based on these checks, we believe the April quarter is tracking at least in line with our estimates and the high end of management's guidance. We continue to recommend BCSI shares, currently trading at 24x our C2006 EPS estimate, given the type of operating leverage we feel is possible as the Company continues to ramp its revenues driven by the recently added sales teams, new products, international expansion and the addition of major new tier-one customers. Contact Us for Full Report - PDF

03.15.05 

bcsi: REITERATE BUY AND $30 TARGET FOLLOWING INVESTOR MEETINGS AND ROUND OF CHECKS
We are reiterating our Buy rating and $30/share target following a series of Blue Coat management meetings with investors and the completion of a round of independent checks with Blue Coat customers, partners, and our industry contacts. We believe Blue Coat's clear leadership position in the emerging proxy appliance market will allow the company to continue to capitalize on the explosive growth (~30% CAGR) in this market. We also believe recent investor concerns surrounding the financial impact of a shift from Secure Computing URL filtering to Blue Coat URL filtering are overblown and, more importantly, this transition is already reflected in our estimates. As such, we find BCSI shares attractively valued, currently trading at 24x our C2006 EPS estimate, given the type of operating leverage we feel is possible as the Company continues to ramp its revenues driven by the recently added sales teams, new products, international expansion and the addition of major new tier-one customers. Contact Us for Full Report - PDF

02.25.05 

bcsi: SOLID QUARTER; IN-LINE GUIDANCE; REITERATE BUY RATING
Yesterday, after the market close, Blue Coat Systems announced FQ3:05 results consistent with the positive pre-announcement announced earlier this month and provided in-line guidance. We continue to believe Blue Coat will leverage its market leadership position in the nascent proxy appliance market, one which we see posting explosive growth for the next several years. We continue to view BCSI shares as attractively valued, currently trading at 20x our C2006 EPS estimate, given our projections which call for over 65% earnings growth in 2006, and strong upside potential from a variety of sources including new products, international penetration, and the addition of major new tier-one customers. We reiterate our Buy rating and $30 price target. Contact Us for Full Report - PDF

02.04.05 

bcsi: IT'S OFFICIAL - GOODBYE GROWING PAINS!
Yesterday, after the market close, Blue Coat raised its FQ3:05 guidance. We believe this positive earnings surprise offers clear evidence that 1) the Company's strategic decision to continue to invest in sales organizations, marketing programs and R&D programs over the last year is paying off and; 2) the Company is well positioned to leverage its leadership position and capitalize on the explosive growth in its market. We are reiterating our Buy rating and $30 price target and encourage investors to add BCSI shares to their portfolios. Contact Us for Full Report - PDF

01.12.05 

bcsi: RECENT CHECKS SUGGEST QUARTER ON TRACK; REITERATE BUY RATING AND $30 PRICE TARGET
We recently completed a round of checks with Blue Coat's customers and partners and several of our industry contacts. Based on these checks, we believe the January quarter is tracking at least in line with our estimates. We continue to believe Blue Coat will leverage its market leadership position in the nascent proxy appliance market, one which we see posting explosive growth for the next several years. We are reiterating our Buy rating and $30 price target and encourage investors to add BCSI shares to their portfolios ahead of the January quarter. Contact Us for Full Report - PDF

12.16.04 

bcsi: GENO DACKLEWOOD IS WATCHING; INITIATING COVERAGE WITH A BUY RATING AND $30 PRICE TARGET
Blue Coat Systems develops a family of high performance proxy appliances that enable organizations to control Web usage, manage the use of time-wasting applications and reduce security risks at wire-speed. Essentially, proxy appliances act as 'middle-men' between users on the network and the Internet and keep 'good' employees from doing 'bad' things on the Internet. We view the company as the innovative leader in this nascent market, one which we see posting explosive growth for the next several years. We believe Blue Coat will leverage its market leadership position and capitalize on this massive market opportunity. We are initiating coverage of Blue Coat Systems with a Buy rating and a $30 price target and view BCSI shares as a compelling investment vehicle to gain exposure to the Web security market. Contact Us for Full Report - PDF