MSDW targets JDSU at $95
dwdean.com
Also heavy Institutional Buying on Fri. They are taking it off the hands of the little guy
iw.thomsonfn.com
input jdsu
TA
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dwdean.com
Outperform
JDS Uniphase Corporation (JDSU) David Jackson/ Alkesh Shah (New York) – Jan. 29, 2001
52–Wk Shs Out EPS EPS EPS 5-Yr Est.
Price Rng Div Yld (MM) 2000A 2001E P/E 2002E P/E Growth
$60 $153–37 -- -- 1,012.0 $0.42 $0.82 72.7 $1.10 54.2 35%
Target Price: $95 Market Cap: $60.3 B
Fiscal year ending June 30.
Company Description
JDS Uniphase Corporation (JDSU) is the largest merchant
provider of optical components. The company supplies
active and passive components and modules to the
telecommunications and cable television industries. In June
2000, JDSU acquired ETEK, one of the largest independent
suppliers of optical components, for roughly $1.5 billion in JDSU stock. In July 2000, JDSU announced an agreement
to merge with SDL (SDLI, $218, not rated), a leading
supplier of laser modules.
Valuation
We rate JDSU shares Outperform. Our $95 target price is
based on a PE/Growth valuation relative to the S&P 500.
Despite deterioration in revenue visibility, and uncertainty in the current market environment, we are optimistic that the company can meet our estimates for the next few quarters until equipment demand from large North American carriers accelerates. We believe there is considerable upside to the stock over the next 12 months.
Key Investment Positives •
We believe Internet traffic is doubling every six months, and 700 million phone lines may be installed in the next 15–20 years. Electronic components cannot keep up with this rate. However, increases in optical transmission speed, and optical equipment such as dense wave division multiplexing (DWDM), solve the accelerating Internet traffic problem, in our opinion.
• DWDM technology is growing. DWDM is the optical
technology that allows the number of lightwaves on a single
fiber to be multiplied. Together with faster speeds per
channel, the capacity has increased by over 160 times since
the introduction of DWDM a few years ago, which means
optical technology is allowing for faster traffic growth than the current growth rate of Internet traffic. Even though we expect the metro DWDM market to take longer to
materialize than most investors realize, we believe that
JDSU should benefit from substantial market growth when
this does occur.
• The optical components industry is supply-constrained.
Component suppliers can barely keep up with demand and
forecasts consistently underestimate demand. The industry
is young, and barriers to entry (e.g., expertise) are high.
Component production is labor-intensive. As a result, we
believe that most optical components companies will
experience strong revenue and income growth and relatively
mild declines in average selling prices, even with steep
increases in quantities.
• JDSU is a market leader among the optical component
companies. The company has revenue, income, and cash
earnings significantly greater than those of its closest rivals. Furthermore, it has the broadest product portfolio, and is the company closest to offering a one-stop shop for optical components, in our opinion. |
