Beholding a bright future in store

Compellent Technology, a provider of what's called "storage area network'' (SAN) computer memory, has grown fast and profitably enough this year to outrun analysts' growth projections and their consensus 12-month target price for the stock. And there may be more to come.

Shares of five-year old Compellent have nearly doubled this year, to $20.82, as the company has demonstrated the cost-effectiveness of its next-generation virtual storage system. The system prioritizes a customer's stored data based on how often it's used and puts less-used stuff in cheaper storage. The stock rose 13.5 percent last week alone and boasts a market value of about $650 million. Compellent went public in October 2007 at $13.50 per share.

After Compellent's resounding third-quarter earnings report Oct. 28, Zack's Investment Research last week noted "analysts continue to revise estimates to keep up with the company's growth."

The Eden Prairie-based company, which has slowed its growth slightly to focus more on profitability, posted earnings before taxes of $4.2 million during the first nine months of 2008, compared with a $1.75 million loss last year, on revenue that grew 40 percent to $89 million.

The stock is now valued a very pricey 50 times projected 2010 earnings of about 40 cents per share on the high end, acknowledged analyst Rajesh Ghai of Thinkequity.com in San Francisco.

Lower tax bite

"If the company is growing north of 35 percent in this recessionary year, it should grow faster next year," Ghai said. "I look at it in terms of earnings in three years' time. And I think Compellent's tax rate will drop from 37 percent to about 15 percent because of [earlier-year losses it can use to offset future earnings]. There's potential for the stock to move higher."

There also is a bit of takeover-speculation premium priced into Compellent.

IBM has been mentioned as one possible suitor because it lacks a storage solution targeted at mid-sized companies, which are the sweet spot for Compellent.

Compellent CEO Phil Soran declined to chat last week, citing restrictions concerning plans to sell 3 million shares of stock by insiders and the company.

The largest seller is long-time owner El Dorado Ventures, which plans to sell 1.4 million of its 3.9 million shares.

Soran, 52, one of three Compellent founders in 2002 and a veteran of IBM and now on his second storage-tech success story, plans to sell 100,000 of the 1.4 million shares he controls. Soran still will own 4 percent of the company. And all executives and directors of the company, who plan to sell 300,000 shares, would still own nearly 10 millions shares of Compellent, or a hefty 31 percent.

In his last public comments, an Oct. 28 conference call with analysts, Soran said: "Simply put, end users are striving to be more efficient. Our dynamic architecture delivers this efficiency. Our storage innovation provides measurable results to IT departments around the world.''

Soran calls the company's "Storage Center'' offering "the most comprehensive enterprise-class network storage solution available today, providing increased functionality and lower total cost of ownership when compared to traditional storage systems."

He's not getting a lot of arguments lately.

Award winner

In 2008, Compellent received several industry awards and was also named Microsoft's "Partner of the Year for Advanced Infrastructure Storage Solutions." And Gartner, a tech industry consultancy, has called Compellent the fastest-growing storage area network company of recent years.

The Storage Center system essentially customizes data by use, storing the 90 percent or so of a company's data that's seldom used on slower, less-expensive storage, which saves money, and curbs the need to constantly add more storage. This is known as "thin provisioning." Traditionally, companies buy more storage than they really need.

Compellent added 136 new customers in the third quarter to a client roster of 1,627 in 35 countries. They range from Digital Chocolate, a software developer of popular games for the iPhone and game consoles such as the Xbox; the University of Wisconsin at Milwaukee; Seven Medical Systems, a provider of on-demand software technology and IT services to the health care industry; and the British Transport Police, England's highway patrol.

Compellent's Storage Center allows users to maximize their existing hardware while cutting power and cooling costs by half or more. In other words, there's no reason to have all the house lights on if you're only working in one room.

And Compellent has added more than 100 jobs over the past year, for a total of 360 employees.

Soran, a strategist and sales guy, founded Compellent with software engineers Larry Aszmann and John Guider. They also are founders of Xiotech, another Eden Prairie-based data storage company, started in 1995 and sold in 1999 to Seagate for $360 million, at the height of the tech boom.

In 2003, Oak Investment Partners of California acquired a majority stake in Xiotech, which has struggled in recent years.

Neal St. Anthony • 612-673-7144 nstanthony@startribune.com