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Redback Networks surges on analyst comments

Shares of the maker of telecom equipment surge after Morgan Stanley raises the stock's price target and says that it's likely to be smooth sailing for the company.

Shares of Redback Networks surged Friday after Morgan Stanley raised the stock's price target and said that it's likely to be smooth sailing for the maker of telecom equipment.

Shares were up $1.08, or more than 7 percent, to $15.52. Earlier, shares touched $16.55.

Morgan Stanley analyst Christopher Stix raised his price target to $25 from $20 Friday and said that the stock has already been discounted because of negative news. Redback is a leading player in the digital subscriber line industry, which has been plagued by negative news for several quarters.

"Along with many of the stocks we cover, (Redback) has faced a series of challenges, including management turnover, missed expectations, potential unexpected shifts in product mix and back-end loaded quarters," Stix wrote. "We believe the bad news is reflected in the stock at this point."

The company's subscriber management-system business, which aggregates DSL traffic and directs it to the correct ISP, is on the road to recovery this quarter. The company's SmartEdge IP card product, which is designed to improve video transmission over metropolitan networks, is also likely to drive up margins by the fourth quarter.

The recent management change could also be a good thing, Stix noted. CEO Vivek Ragavan's resignation has given Chairman Pierre Lamond a chance to tighten the reigns, and the results so far are positive, Stix said.

When Ragavan resigned, shares plunged as analysts speculated that the departure could put the company's SmartEdge products in jeopardy.

The analyst also said the company could beat his fourth-quarter estimates based on a recovery in the DSL equipment business. His numbers call for a loss of a penny a share on revenue of $110 million. Stix said the company's appearance at Supercomm, a networking conference in Atlanta next week, could improve Redback's standing on Wall Street. If the company provides any outlook on its financial situation then, it "could drive the stock higher."