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A convergence of several unfavorable situations can negatively impact a company’s top and bottom line very quickly. This is what happened to our Zacks Bear of the Day, Gigamon Inc. , they experienced a combination of a lower seasonal spending, slowing purchases by vendors, and a decline in spending in a company’s security segment.
This Zacks Rank #5 (Strong Sell) company is engaged in providing intelligent Traffic Visibility solutions for enterprises, data centers and service providers. Its products consist of GigaVUE, GigaSECURE, GigaSMART and GigaTAP products. The Company's fabric enables information technology organizations to forward traffic from network infrastructure to management, analysis, and compliance and security tools. It has operations primarily in the United States, the rest of North America, Europe, the Middle East, Africa, and the Asia Pacific. Gigamon Inc. is headquartered in Milpitas, California.
Recent Earnings Results
Last week, management posted Q4 16 results, and they significantly missed the Zacks consensus earnings estimate, but met the Zacks consensus revenue estimate. Management had previously negatively preannounced their Q4 16 guidance, so expectations were significantly tempered before the announcement. Further, management announced guidance for Q1 17, and it was well below expectations; revenues in a range of $67-70 million (below the previously expected $80 million), pro-forma EPS in a range of $0.04-0.08 (well below the previous expectation of $0.26 estimate).
Management’s Take
According to Paul Hooper, CEO, “Gigamon delivered the second consecutive year of 40% year-over-year revenue growth as we continue to demonstrate leadership in this exciting growth market. Our 2016 financial performance is a testimony to our leadership, the demand for visibility to information-in-motion, and the value we deliver to our customers as they secure, manage and understand the complex world of information. During the year, we extended our addressable market by delivering the first to market solution for visibility into the Amazon Web Services cloud and enhanced our security platform in 2016. With our strong leadership in the industry, we believe our security-enabling platform for private, public and hybrid clouds has become an essential component of modern IT infrastructure."
Price and Earnings Consensus Graph
As you can see in the graph below, the company’s stock price and future earnings estimates have been cut in half since the end of 2016.
Due to the poor earnings report, and reduction in guidance for Q1 17, earnings estimates have significantly declined over the past 7 days for Q1 17, Q2 17, FY 17 and FY 18; Q1 17 fell from $0.09 to -$0.07, Q2 17 dropped from $0.16 to $0.01, FY 17 plummeted from $0.75 to $0.26, and FY 18 crashed from $1.06 to $0.63.
Bottom Line
While management believes that they will return to 20-25% year over year sales growth in the second half of 2017, they still have several hurdles to overcome in the near term. It would be worth considering waiting on the sidelines for the first half of 2017, especially in Q1 17, to ensure management is on track to reach their sales goals in the second half of the year.
If you are inclined to invest in the Communication/Components segment you would be best served by looking into ShoreTel , who currently carries a Zacks Rank #1 (Strong Buy), or AudioCodes (AUDC - Free Report) , who has a Zacks Rank #2 (Buy).
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Bear of the Day: Gigamon Inc. (GIMO)
A convergence of several unfavorable situations can negatively impact a company’s top and bottom line very quickly. This is what happened to our Zacks Bear of the Day, Gigamon Inc. , they experienced a combination of a lower seasonal spending, slowing purchases by vendors, and a decline in spending in a company’s security segment.
This Zacks Rank #5 (Strong Sell) company is engaged in providing intelligent Traffic Visibility solutions for enterprises, data centers and service providers. Its products consist of GigaVUE, GigaSECURE, GigaSMART and GigaTAP products. The Company's fabric enables information technology organizations to forward traffic from network infrastructure to management, analysis, and compliance and security tools. It has operations primarily in the United States, the rest of North America, Europe, the Middle East, Africa, and the Asia Pacific. Gigamon Inc. is headquartered in Milpitas, California.
Recent Earnings Results
Last week, management posted Q4 16 results, and they significantly missed the Zacks consensus earnings estimate, but met the Zacks consensus revenue estimate. Management had previously negatively preannounced their Q4 16 guidance, so expectations were significantly tempered before the announcement. Further, management announced guidance for Q1 17, and it was well below expectations; revenues in a range of $67-70 million (below the previously expected $80 million), pro-forma EPS in a range of $0.04-0.08 (well below the previous expectation of $0.26 estimate).
Management’s Take
According to Paul Hooper, CEO, “Gigamon delivered the second consecutive year of 40% year-over-year revenue growth as we continue to demonstrate leadership in this exciting growth market. Our 2016 financial performance is a testimony to our leadership, the demand for visibility to information-in-motion, and the value we deliver to our customers as they secure, manage and understand the complex world of information. During the year, we extended our addressable market by delivering the first to market solution for visibility into the Amazon Web Services cloud and enhanced our security platform in 2016. With our strong leadership in the industry, we believe our security-enabling platform for private, public and hybrid clouds has become an essential component of modern IT infrastructure."
Price and Earnings Consensus Graph
As you can see in the graph below, the company’s stock price and future earnings estimates have been cut in half since the end of 2016.
Gigamon Inc. Price and Consensus
Gigamon Inc. Price and Consensus | Gigamon Inc. Quote
Declining Estimates
Due to the poor earnings report, and reduction in guidance for Q1 17, earnings estimates have significantly declined over the past 7 days for Q1 17, Q2 17, FY 17 and FY 18; Q1 17 fell from $0.09 to -$0.07, Q2 17 dropped from $0.16 to $0.01, FY 17 plummeted from $0.75 to $0.26, and FY 18 crashed from $1.06 to $0.63.
Bottom Line
While management believes that they will return to 20-25% year over year sales growth in the second half of 2017, they still have several hurdles to overcome in the near term. It would be worth considering waiting on the sidelines for the first half of 2017, especially in Q1 17, to ensure management is on track to reach their sales goals in the second half of the year.
If you are inclined to invest in the Communication/Components segment you would be best served by looking into ShoreTel , who currently carries a Zacks Rank #1 (Strong Buy), or AudioCodes (AUDC - Free Report) , who has a Zacks Rank #2 (Buy).
Just Released – Driverless Cars: Your Roadmap to Mega-Profits Today
In this latest Special Report, Zacks’ Aggressive Growth Strategist Brian Bolan explores a full-blown technological breakthrough in the making – autonomous cars. He also spotlights 8 stocks with tremendous gain potential to feed off this phenomenon. Click to see the stocks right now >>