Nimble Storage Inc (NMBL) Finds Good Deal

Nimble Storage Inc (NYSE:NMBL) shares are rising 45% following the buzz that Hewlett Packard Enterprise Co (NYSE:HPE) has eyes set on acquiring the flash storage maker. BMO analyst Tim Long cheers the “good deal” as HPE intends to take on NMBL, the analyst’s “top small cap pick for 2017” for $12.50 per share in cash coupled with a 45% premium.

Yet, though the analyst sees the deal as positive, he downgrades from an Outperform to a Market Perform rating on shares of NMBL while raising the price target from $12 to $12.50, which aligns with current levels.

Long asserts, “The takeout price represents a solid premium and should stem some of the recent pressure on smaller storage vendors such as Pure Storage and Nutanix. A big part of our thesis on NMBL was very attractively valued given the growth prospects. We believe industry consolidation will benefit all of the remaining players in the market and the valuation premium paid by HPE should provide a level of support.”

Additionally, NMBL posted fiscal fourth-quarter results for 2017, with a revenue outclass of $117 million ahead of both the analyst’s as well as consensus projections of $114 million. Meanwhile, gross margins were “roughly in line” and op margins at a -9.0% fared “better” than the analyst’s expectation for -10.3%. EPS of ($0.12) also outperformed both the analyst’s forecast of ($0.14).  NMBL has not offered guidance amid the forthcoming agreement. In reaction to the announcement, the analyst is boosting his fiscal 2018 revenue estimate from $500 million to $509 million and EPS from ($0.47) to ($0.49). Furthermore, the analyst has introduced new estimates for fiscal 2019 with revenue of $614 million and EPS of ($0.16).

“Nimble’s momentum in flash continued in the quarter,” continues the analyst, particularly with AFA bookings jumping to 33% of total product bookings compared to 24% this time last quarter coupled with a $160 million bookings run rate, marking a meaningful rise from 67% last quarter.

“While we would not entirely rule out another bidder stepping forward, the other logical bidders have already made acquisitions in the space,” Long surmises.

As usual, we like to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks, four-star analyst Tim Long is ranked #436 out of 4,511 analysts. Long has a 60% success rate and earns 10.0% in average profits on the stock. When recommending NMBL, Long gains 6.5% in average profits on the stock.

TipRanks analytics show NMBL as a Buy. Based on 4 analysts polled by TipRanks in the last 3 months, 1 rates a Buy on Nimble stock while 3 maintain a Hold. The 12-month average price target stands at $10.50, marking a 16% downside from where the stock is currently trading.

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