Summit Research Upgrades QLogic (QLGC) to Buy; Favorable Risk/Reward

Summit Research upgraded QLogic (NASDAQ: QLGC) from Hold to Buy with a price target of $13.00 (from $11.00), saying the risk/reward is favorable following the recent pullback.

Analyst Srini Nandury commented, "Qlogic has pulled back significantly from early June highs (down 37% versus S&P of down 4%) after the company preannounced an earnings shortfall. We believe Qlogic kitchen-sinked estimates and we are optimistic the company will at least meet (likely beat) the lowered bar for the year, which is enough for the stock to work. Fibre Channel continues to be fairly stable (AFA have high attach rates as attested by Nimble and Brocade), with a Grantley refresh and seasonally strong F2Q and F3Q, and Opex reductions and share buybacks ($60mln buyback by end of 2015) should support estimates. In addition, any improvement in Ethernet business will also aid the stock given that the company inherited a fairly robust portfolio from Broadcom."

He added, "Finally, gross margin improvement in its Ethernet business due to manufacturing consolidation and design for costs and operational improvements should at least contribute 800-1200bps improvement in Ethernet margins (with part of the improvement showing in F2016). Therefore, at current levels we believe the risk/reward continues to remain favorable for investors, especially in a highly volatile market. Our $13 PT is based on ~12x on C2016 EPS of $0.89 plus net cash of ~$3.50."

For an analyst ratings summary and ratings history on QLogic click here. For more ratings news on QLogic click here.

Shares of QLogic closed at $10.11 yesterday.

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