Brocade Communications Systems (NASDAQ: BRCD) and Ericsson (NASDAQ:ERIC) are both mid-cap technology companies, but which is the superior investment? We will contrast the two companies based on the strength of their dividends, analyst recommendations, earnings, institutional ownership, valuation, profitability and risk.

Insider & Institutional Ownership

83.7% of Brocade Communications Systems shares are held by institutional investors. Comparatively, 8.1% of Ericsson shares are held by institutional investors. 1.8% of Brocade Communications Systems shares are held by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company will outperform the market over the long term.

Analyst Recommendations

This is a breakdown of current recommendations for Brocade Communications Systems and Ericsson, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Brocade Communications Systems 1 3 0 0 1.75
Ericsson 2 7 4 0 2.15

Brocade Communications Systems presently has a consensus price target of $12.83, suggesting a potential upside of 1.13%. Ericsson has a consensus price target of $5.34, suggesting a potential downside of 16.43%. Given Brocade Communications Systems’ higher possible upside, analysts clearly believe Brocade Communications Systems is more favorable than Ericsson.

Risk and Volatility

Brocade Communications Systems has a beta of 0.54, meaning that its stock price is 46% less volatile than the S&P 500. Comparatively, Ericsson has a beta of 1.09, meaning that its stock price is 9% more volatile than the S&P 500.

Dividends

Brocade Communications Systems pays an annual dividend of $0.22 per share and has a dividend yield of 1.7%. Ericsson pays an annual dividend of $0.07 per share and has a dividend yield of 1.1%. Brocade Communications Systems pays out 314.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Ericsson pays out -10.8% of its earnings in the form of a dividend.

Earnings & Valuation

This table compares Brocade Communications Systems and Ericsson’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Brocade Communications Systems $2.35 billion 2.24 $213.81 million $0.07 181.29
Ericsson $26.02 billion 0.82 $200.60 million ($0.65) -9.83

Brocade Communications Systems has higher earnings, but lower revenue than Ericsson. Ericsson is trading at a lower price-to-earnings ratio than Brocade Communications Systems, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Brocade Communications Systems and Ericsson’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Brocade Communications Systems 1.30% 5.42% 2.84%
Ericsson -8.60% -5.67% -2.57%

Summary

Brocade Communications Systems beats Ericsson on 10 of the 15 factors compared between the two stocks.

About Brocade Communications Systems

Brocade Communications Systems, Inc. (Brocade) is a supplier of networking hardware, software and services, including storage area networking (SAN) solutions and Internet protocol (IP) networking solutions for businesses and organizations of various types and sizes. The Company operates through three segments: SAN Products, IP Networking Products and Global Services. The SAN Products segment includes infrastructure products and solutions that help customers develop and deploy storage and server consolidation, disaster recovery and data security. The IP Networking Products segment includes Layer 2 and Layer 3 Ethernet switches, and routers to connect users over private and public networks. The Global Services segment includes break or fix maintenance, installation, consulting, network management and software maintenance, and post-contract customer support. Its products enable customers to deploy architectures and technologies, including virtualization and cloud computing.

About Ericsson

Telefonaktiebolaget LM Ericsson (Ericsson) provides infrastructure, services and software to the telecommunication industry and other sectors. The Company’s segments include Networks, IT & Cloud and Media. The Networks segment consists of two business units: Network Products and Network Services. The overall focus is on evolving and managing access networks, including the development of hardware and software for radio access and transport networks. The IT & Cloud business includes two business units: IT & Cloud Products and IT & Cloud Services. The focus in IT & Cloud is to help telecom operators and selected enterprises through the digital transformations ahead. It develops and delivers software-based solutions for television and media and combines a product portfolio that spans the television value chain, with systems integration and managed services. The portfolio includes compression, content publishing through set-top box or pure over-the-top, content delivery and analytics.

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