Riverbed Under Pressure

Riverbed (RVBD) shares are under pressure this morning as Goldman Sachs analyst Simona Jankowski launched coverage of the company with a Sell rating and $15 price target.

Jankowski says the company’s share of the WAN optimization market has likely flattened out, and that the growth of the sector will slow below Street expectations. Jankowski contends that WAN optimization functionality will be integrated into routers, that desktop virtualization diminishes the need for WAN optimization and that competition is increasing. While Jankowski expects EPS growth of 40% compounded over the next 5 year, she says that it not enough to support a P/E of 75 2009 estimated EPS.

Meanwhile, late yesterday Standard & Poor’s analyst Ari Bensinger cut his rating on the stock to Sell from Hold. “We see a large market opportunity for wide area data services like RVBD’s,” he writes, “but we remain wary that a more difficult macroeconomic environment and intensifying competition will limit near-term demand.” Bensinger also says that increasing operating expenses make it difficult for RVBD to reach its 25% operating margin target before the end of 2009. “With RVBD trading at a significant premium to peers on most valuation metrics, we view the shares as overvalued,” he writes. He maintains a price target of $15.

RVBD today is down 81 cents, or 4.74% at $16.29 as of 11:25 a.m. EDT.

Comments

[gwinner]

Riverbed has a disruptive technology that has broader application than is currently appreciated. They win deals hands down when benchmarks are performed by customers. The macro-economic environment is a concern. However, Riverbed will continue to achieve growth rates well above average. To value them based on the PE of peers is a mistake of the current macro-economic environment. Also, for GS to announce coverage at this time with a one year target at $15 smacks of something stinky.