Riverbed: Lazard Lauds ‘Cascade,’ ThinkEquity Sees Q3 Easy Bar

Shares of networking equipment vendor Riverbed Technology (RVBD) are up $1.27, or almost 6%, at $22.75 after a couple of positive analyst notes this morning.

Lazard Capital’s Ryan Hutchinson reiterated a Buy rating on the shares and a $30 price target, while writing that the company’s forays into adjacent markets are ill understood by investors.

Riverbed sells a product called “Cascade,” which serves the “network performance management,” or NPM, needs of customers, and which was developed based on technology from Mazu Networks, which Riverbed acquired in 2009. NPM is separate from Riverbed’s main business of “WAN optimization,” and the Cascade product is on track to make annual revenue of $40 million.

That makes Cascade now a meaningful contributor to Riverbed’s $712 million in projected revenue this year, writes Hutchinson. He sees that amount rising to $100 million or more by 2015.

Hutchinson does a back of the envelope calculation as to how Cascade can add to results:

Gartner tracks the network management market as a subset of the broader IT operations management market. While we don�t believe this tightly encompasses Riverbed�s opportunity with Cascade, we have looked at it as a proxy. Gartner expects the NPM market to grow from $1.8B in 2011 to $2.3B in 2015, representing a 6.3% CAGR. Given the current run rate and the potential to leverage the Steelhead installed base to gain share, we don�t believe that 100M+ in revenue by 2015 is a stretch. This would equate to roughly 5% of the NPM market by 2015.�With respect to 2012, our estimated 30% y/y growth rate for Cascade implies revenues of $58M for the year, a number we think is reasonable given that the product is relatively new and coming off of easy 2011 compares. In a quick back of the envelope calculation where we assume a 35% operating margin and a tax rate of 25%, we arrive at $0.09 in EPS, roughly 8% of our 2012 EPS estimate of $1.19.

In a slightly different vein, ThinkEquity’s Rajesh Ghai writes that the stock should be bought ahead of RiverBed’s October 19th Q3 report because expectations are probably too low.

“we are incrementally more confident in RVBD’s ability to at-least meet Consensus 2H11 estimates in its report and guide scheduled for next week. With the stock reflecting a potential miss and guide-down in our view, we believe an in-line quarter is likely to restore investor confidence in RVBD’s growth story.”

Ghai raised his estimate for revenue this year to $720 million from $710.7 million, and raised his EPS estimate to 86 cents from 84 cents.

For the Q3 that just ended, he models $186.4 million, and 21 cents EPS. The Street is looking for $185 million and 21 cents.