CSFB on SONS
CY1Q07 Preview
Investment Thesis. Sonus (SONS) remains one of our two favorite investment
ideas in communications infrastructure for CY07. 100% leveraged to and a
leading competitor in the fast growing and still young service provider Voice
over IP market, we believe SONS offers a strong near and long-term outlook.
1Q07 Outlook. SONS is scheduled to release its 1Q07 results after the
market-close on May 7th at 4:45pm ET (Dial-in: ). We expect SONS to post
solid first quarter results with a strong outlook for the remainder of 2007.
More specifically, we expect Rev/PF EPS (ex-FAS123R) to be in line or
above both our and Street consensus respective estimates of
$74.0mln/$0.05 and $74.4mln/$0.03. We continue to expect acceleration—
off of the 30+% growth in each of the past two years--in the SP VoIP market
and in SONS’s revenues and EPS as Tier 1 carriers begin to move forward
more aggressively with VoIP deployments in CY07 and CY08. SONS’s
4Q06 bookings lends support to this view. Accordingly, we anticipate, but
will not be concerned by, a book-to-bill less than 1.0 given historical
seasonal patterns, which involve SPs resetting their budgets in the calendar
first quarter. As for recent investor concerns regarding the outlook for
SONS’s oper margins, if we prove accurate regarding SONS’s rev
trajectory, we do not view our current oper margin proj.s as unachievable.
Channel Checks. Our recent conversations with half a dozen of SONS’s
leading customers -- including, among others, Global Crossing, Level 3,
Qwest and Verizon -- reinforce our outlook for SONS’s long-term operating
performance and its shares. In particular, consistent with our historical field
checks, SONS continues to distinguish itself in terms of both its technology
and its customer support. Also notably, while still early, our industry checks
indicate that SONS is gaining traction with its NBS network border switch.
This platform now has over 10 customers representing over 15% of SONS’s
64 announced customers. We believe the NBS platform will generate at
least 10% of total annual revenues within the next two years—all of which is
incremental. Similarly, we also expect the company’s IMX application
gateway will drive 10% or more of total revenues within the next two years.
Valuation. We continue to believe that SONS offers one of the most compelling
small-cap ideas in the communications infrastructure industry, with significant
upside opportunity and limited downside risk. Our 12-month $11 PT is driven by
applying a 30x multiple to our FY08 $0.36 PF EPS (ex-options exp) estimates.
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Their Rev est is $354M in 07 and $465M in 08. They have an operating margin of, hold your hats, 25.5% pre-tax/interest income and a final margin of 20.5% in 2008.
Cooters
PS Mock is f'n clueless |
