Pacific Growth downgraded Witness Systems (WITS
) to neutral from buy, citing the stock's valuation and expectations of challenging earnings ahead for the company.
Analyst Derrick Wood says the company has consistently exceeded guidance over the last couple years, but with operating margins nearing 20%, the company may not be able to deliver the same magnitude of earnings per share (EPS) upside vs. its historic trends. Also, while the company continues to benefit from many growth drivers, he does not expect any material change in growth rates in the near term. He notes that the downgrade comes as the company is entering a seasonally challenging first quarter, and the stock is approaching his $24.50 fair valuation.