Compellent shares surge on solid results, outlook, M&A chatter

BANGALORE (BestGrowthStock) – Shares of data storage provider Compellent Technologies Inc (CML.N: ) soared 28 percent as investors cheered robust quarterly results on Tuesday and a solid fourth-quarter outlook coming after a slightly soft first half.

The company’s shares had gained more than 10 percent in value on Tuesday after Reuters reported that it might be seeking a suitor and had held preliminary meetings with bankers, including Frank Quattrone’s boutique firm Qatalyst.

Quattrone advised Compellent’s rival 3Par in its sale to Hewlett-Packard (HPQ.N: ) last month.

The data storage space has seen stocks surging and much investor interest since the 3Par acquisition, with Compellent’s stock gaining almost a third of its value over the past two months.

The investor reaction is a combination of the earnings report and M&A chatter, Craig-Hallum analyst Eric Martinuzzi told Reuters.

“They reported very strong fundamentals,” he said.

Brokerage RBC Capital Markets said Compellent is well positioned to expand its product portfolio and sales initiatives to spur long-term revenue growth.

Compellent entered the Australian market in the third quarter and is expanding its sales team.

RBC, however, noted that the company may be hurt in the near term with increasing competitive pressures from EMC Corp (EMC.N: ), which is slated to release a lower-end, mid-range storage offering in the first half of 2011.

RBC raised its price target on Compellent’s stock by $2 to $23 and maintained its “sector perform” rating.

Wedbush Securities, which believes Compellent’s technology and high growth rate make it an attractive target for large IT vendors, also raised its price target to $24 from $16.

“We are encouraged by the larger deal size as we believe ASP growth is a key to success for the company,” Wedbush said in a note.

Wedbush analyst Kaushik Roy, however, said investors were getting too optimistic after just one good quarter and the real test will be sustainability.

“One great quarter doesn’t indicate they’ll become the next billion dollar company,” Roy told Reuters by phone.

“The stock is expensive. I’m not ready to load up the truck with Compellent shares.”

Roy has a “neutral” rating on the stock, which trades at a forward price-to-earnings multiple of 115.88, compared with the sector average of 33.78.

Shares of Compellent were trading up 25 percent at $24.53 in midday trade, after hitting a lifetime high of $25.22 earlier in the session. About 5 million shares had changed hands — about 2 times the stock’s 50-day moving average volume.

(Reporting by Sayantani Ghosh and S. John Tilak in Bangalore; Editing by Anne Pallivathuckal)

Compellent shares surge on solid results, outlook, M&A chatter