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Gigamon Q4 & '16 Preliminary Numbers Fail to Cheer Investors

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The market is not really happy with Gigamon Inc.’s (GIMO - Free Report) preliminary numbers for the fourth quarter and fiscal 2016. Following the announcement, the company’s stock price declined nearly 2.9% in the last trading session to close at $44.05. 

We note that the stock has underperformed the Zacks classified Communications-Components industry in the past six months. The stock has gained just 6.6% during this period, compared with an increase of 17.5% for the industry.

Q4 Outlook Disappoints

Gigamon estimates revenues in the range of $84.5–$85 million for the fourth quarter, lower than the previous guidance of $91 million to $93 million, due to lower-than-expected product bookings in the North America region. The Zacks Consensus Estimates is pegged higher at $92 million. Non-GAAP earnings are anticipated to be in a range of 35-37 cents per share, again lower than the previous guidance of 36-38 cents per share.

However, Non-GAAP gross margin is estimated in a range of 83% to 84% compared with the company's earlier guided range of 82% to 83%.

Gigamon is scheduled to announce fourth-quarter and full year 2016 results on Feb 2, 2017.

2016 Outlook

For 2016, Gigamon expects revenues to be approximately $310.3 million to $310.8 million, representing 40% increase on a year-over-year basis. However, the revenue projection falls short of the Zacks Consensus Estimate of $318 million.

Non-GAAP earnings are projected in a range of $1.22 to $1.25, reflecting 50% year-over-year increase. This is primarily attributable to better-than-expected market share on the back of the company’s key technology, solutions and partnerships.

Non-GAAP gross margin is estimated in a range of 82% to 83% whereas non-GAAP operating margin is anticipated in a range of 22% to 23%.

Our Take

Gigamon’s preliminary results didn’t impress investors. However, the company’s year-over-year revenue and earnings comparisons for 2016 were encouraging.  

We believe that Gigamon is well positioned to benefit from a rapidly growing network security solutions market, which is worth more than $18 billion. The ongoing transition to cloud and the fast adoption of the Internet of Things (IoT) technology presents significant growth potential for the company.

We believe that product launches will continue to drive growth. The GigaSMART, GigaVUE-HC1 and GigaVUE-HC2 platforms continue to witness increased adoption. Moreover, the company is adding clients, which should bolster its financial results.

Zacks Rank & Stocks to Consider

Gigamon currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader technology sector include Check Point Software Technologies Ltd. (CHKP - Free Report) , Seagate Technology plc (STX - Free Report) and Western Digital Corporation (WDC - Free Report) . All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Check Point, Seagate and Western Digital have a long-term expected EPS growth rate of 10.14%, 8.79% and 1.76%, respectively.

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