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How Does Brocade Increase Shareholder Value?

What Are the Key Drivers behind Brocade Communications' Growth?

(Continued from Prior Part)

Brocade accelerates share repurchase program

The operating cash flow for Brocade (BRCD) was $112 million at the end of fiscal 1Q16, which was above its outlook due to higher revenues and increased profitability. Brocade accelerated its plans related to the share repurchase program in fiscal 1Q16, re-prioritizing the firm’s use of cash by purchasing 15.4 million shares in the quarter at a cost of $144 million, which was the largest quarterly share repurchase since 2011.

The CFO of Brocade, Dan Fairfax, stated, “We regularly assess our plans for future quarters and remain committed to returning free cash flow to shareholders through our share repurchase program and dividend.” Brocade pays a dividend of $0.045 per quarter, or $0.18 for the year, which amounts to a 2% yield. By comparison, Cisco (CSCO), Harris (HRS), and Juniper Networks (JNPR) had dividend yields of 3.9%, 2.6%, and 1.8%, respectively, as of December 2015. Cisco accounts for 3.2% of the Technology Select Sector SPDR (XLK).

Analyst recommendations

Of the 24 analysts covering Brocade’s stock, five have given it “buy” recommendations, one has given it a “sell” recommendation, and 18 have issued “hold” recommendations on the stock. The analyst stock price target for the company is $10.5 with a median target estimate of $10. BRCD is thus trading at a discount of 8.8% to median estimates.

Browse this series on Market Realist:

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