Unusual Executive Behavior Suggests Better Days Are Ahead for Blue Coat Systems Inc.

Share Article

In a report released publicly today, Gradient Analytics, an independent research firm, details how shares of Blue Coat Systems Inc. (BCSI) could increase substantially over the next 6-12 months, based on unusual executive behavior, significant improvement in margins and cash flow and a buildup in deferred revenue.

He has a history of well-timed transactions in BSCI shares relative to subsequent share-price performance.

In a report released publicly today, Gradient Analytics, an independent research firm, details how shares of Blue Coat Systems Inc. (BCSI) could increase substantially over the next 6-12 months. Based on unusual executive behavior as well as significant improvement in margins and cash flow and a buildup in deferred revenue, Gradient's analysis suggests that BCSI shares may be undervalued.

BCSI shares have been pressured over the past two quarters as a result of disappointing revenues and guidance. Specifically, shares fell 25.6% after the firm released Q4 FY2010 results (on April 30). Similarly, on Aug. 19, shares fell 7.6% after the firm disclosed Q1 FY2011 results and Q2 FY2011 guidance. Management attributed the slowdown in revenue growth and lower-than-expected guidance to the Europe, Middle East, and Africa (EMEA) region, which saw a 6% drop in product revenue during the quarter.

Nevertheless, on Aug. 23, the firm's chairman, David Hanna, exercised 63,500 options and held all of the acquired shares. The options represented more than 80% of the total he had available for exercise at the time. In addition, the transaction increased his common-stock holdings by 22.1%. Hanna's exercise-and-hold transaction led him to forgo $551,705 in pretax profits and expose the shares he held to future BSCI share-price movements. This was Hanna's first exercise-and-hold transaction since he joined the company in 1996.

"Hanna's activity appears to signal a shift in sentiment toward a more positive outlook," said Gradient analyst, Robert Kennedy. "He has a history of well-timed transactions in BSCI shares relative to subsequent share-price performance."

Gradient's analysis also shows that there has been significant improvement in margins in each of the last five quarters. Contributing factors include strong cash-flow growth and a buildup of negative accruals. The accruals trend has been driven in large part by an increase in deferred revenue and a decline in accounts receivable. Gradient's research suggests that BSCI's shares may be undervalued relative to its peers--particularly given the large sum of cash on the company's balance sheet.

About Gradient Analytics
Gradient Analytics is one of the country's leading independent research firms providing objective, academically rigorous research and quantitative stock ratings for institutional clients.

About Blue Coat Systems Inc.
Blue Coat Systems Inc. is a network security and network management company based in Sunnyvale, Calif.

For Immediate Release
Contact: Karen Hinton, 703-798-3109, karen(at)hintoncommunications(dot)com

# # #

Share article on social media or email:

View article via:

Pdf Print

Contact Author

Karen Hinton
Visit website