Is Brocade a Buy Ahead of Earnings?

NEW YORK (TheStreet) -- Network equipment maker Brocade(BRCD) will be reporting first-quarter earnings on Thursday and I will be paying close attention to see if it presents sufficient justification to remain on my watch list. For as much as I have been an unabashed cheerleader of Cisco(CSCO) and the rest of the networking sector, Brocade has always been a name I have kept at arm's length.

Mainly, the stock has always been too expensive for me. I have never been able to justify paying for an equity that trades almost three times the price-to-earnings ratio of the market leader, Cisco, while also lagging in both operating and gross margins. That never really sat well with me.

However I am more than willing to give the company its share of credit for not only having managed a poor market perception, but also for navigating through a very difficult financial period -- somewhat evident in its latest earnings report.

The company's numbers were far from stellar as it demonstrated flat revenue on a year-over-year basis while dropping 10% sequentially. But I walked away from the disappointing declines still wanting to give the company the benefit of the doubt, understanding that it did beat consensus estimates on both year-over-year declines as well as its end of range, while showing decent profitability.

Expectations for the Quarter

For the coming quarter analysts are expecting earnings per share of 8 cents -- which would represent a decline of 11% from the same period a year ago. Although the company has been performing relatively well, it has seen a reduction in analysts' estimates over the past three months -- previously from 9 cents.

For the year, analysts are projecting net income of 43 cents per share -- representing an increase of almost 40% from last year. Revenue is projected to arrive at $541.4 million, a decline of 1.6% annually from $560 million. I think these are pretty modest numbers for a company the caliber of Brocade, a company that has shown a considerable amount of improvement since the beginning of the year.