Wachovia: VTSS: FQ2 In-Line, Guidance In-Line, Maintaining Estimates
Stock Rating: MARKET PERFORM
Karl Motey / (415) 490-1208
52-Wk. Rng.: $10-2
Shares Out.:(MM) 228.1
Market Cap.:(MM) 1,300.2
Float:(MM) 208.3
LT Debt:(MM) $198.2
Avg. Daily Vol.: 6,765,000
LT Debt/Total Cap.: 0.3%
3-5 Yr. Est. Grth. Rate: 35%
CY2004Est. P/E-to-Grth.: 2.0x
Key Points
* REPORTED IN-LINE FQ2 RESULTS. Revenue/EPS of $56M/$0.01, in-line w/
our/consensus estimates of Revenue/EPS of $55.4M/$0.01, driven by sales in Metro
and Transport.
* BROAD-BASED GROWTH, ACROSS ALL SEGMENTS. Growth came from Metro up 23% q/q to
$11.4M, long-haul core up 21% q/q to $8.7M, enterprise up 11% q/q to $11.2M and
storage up 4% q/q to $24.7M. In our view, we continue to believe VTSS' metro
and enterprise segments (40% of sales) represent the most sustainable growth
drivers in CY04.
* BOOK:BILL ABOVE 1.0, IN-LINE GUIDANCE. Vitesse's book:bill was 1.11:1.0 (down
from 1.18:1), with management citing increasing bookings, $62M (from $59M in
FQ1). Management guided June revenue to grow about 8% q/q to $60.5M (above
previous FC estimates of $60.3M). No 10% customers.
* MAINTAINING ESTIMATES AND OUR MARKET PERFORM RATING. While VTSS' exposure to
the comm market should continue to support revenue growth in the near-term, we
are maintaining our rating on shares of Vitesse, Market Perform, due to its fair
valuation and strong competitive environment.
Valuation Range: $5 to $7
VTSS is trading at an enterprise value/2004 sales of 2x (versus 5.4x for the
group). We anticipate that the stock could trade in a range of $5.00-7.00,
based on 2-4x enterprise value/2004 sales. Risks include aggressive pricing and
increased competition.
Investment Thesis:
Vitesse remains a primary comm IC supplier for the telecom market, while
continuing to penetrate the storage and datacomm markets. On the basis of
limited visibility and fair valuation, we maintain our Market Perform rating on
the shares of VTSS. |
