Needham Cuts Nimble Storage To Buy From Strong Buy, Lowers EPS Outlook

July 28, 2015

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In a report published Tuesday, Needham analyst Richard Kugele downgraded the rating on Nimble Storage, Inc. (NYSE: NMBL) from Strong Buy to Buy, while lowering the price target from $35 to $32. Although the company is expected to post strong F2Q results, increased opex investments are expected to adversely impact performance in FY17.

"We expect the solid revenue trajectory exhibited by NMBL continued in F2Q, with further share gains and expansion into enterprise accounts with its hybrid and all-flash solutions," Kugele state, while expressing concern regarding the outlook for FY17, given that the company is expected to invest in growth.

For F2Q, the analyst expects Nimble Storage to be able to meet or beat its revenue and EPS guidance, with the company adding larger enterprise accounts due to its all-flash and hybrid offerings, as well as gaining market share from legacy vendor installations.

However, the analyst also expressed concern regarding the consensus expectations not being in-line with the company's vision.

According to the Needham report, "NMBL has repeatedly forecast that it is targeting operating profitability by the end of F16 (the January '16 ending quarter), and we continue to believe it will achieve this goal even if it is to the detriment of topline growth."

The revenue and EPS estimates for F16 and F17 have been lowered, given that the company is expected to "invest profit dollars derived from improving revenue into greater sales and R&D for future growth rather than dramatic EPS leverage," Kugele added.