This CEO Steps Out at the Top of His Game

Brocade Communications Systems (NAS: BRCD) did all right in the third quarter. The company beat analyst targets left and right, but the beats weren't big enough to change anyone's investment thesis on the stock.

Revenue of $555 million was 3% above analyst targets, and $0.14 of non-GAAP earnings per share presented a more impressive 17% surprise. The strong results rested on surprising federal order volumes. Nobody expects that windfall to show up again in the fourth quarter.

Brocade's shares have climbed more than 50% over the past year. Trailing adjusted earnings margins have jumped from 1.9% to 5.8% over those four quarters, the company is paying down debt and buying back shares on strong cash flows, and the business looks hale and hearty all over.

And against that backdrop, longtime CEO Mike Klayko announced his intention to leave the company as soon as the board finds a replacement.

Some market watchers call Klayko's resignation a distraction. Others ponder the possibility that Klayko might be paving the way for selling Brocade. Oracle (NAS: ORCL) was recently seen as a potential buyer. Brocade would also be a tasty plug-in partner for storage specialists NetApp (NAS: NTAP) or EMC (NYS: EMC) . Still others wonder whether Klayko isn't bowing out because he failed to find a buyer.

Whatever the case, Klayko will stay around for a while. In the meantime, Brocade can be found in the market's bargain bin even after that terrific 52-week run and trades for less than 10 times forward earnings estimates. I'm impressed by Brocade's solid foundation and excited about its position to cash in on the Big Data explosion. Fools don't play the market timing game, so I'm happy to slap a thumbs-up CAPScall on Brocade right here, right now. In my world, that's the shiniest accolade I can bestow on any stock short of just buying shares myself.

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