here's the full-text post-earnings lehman brother's report.
note that disclosures A & C apply:
Disclosure Legend
A-Lehman Brothers Inc. managed or co-managed within the past three years a public offering of securities for this company.
B-An employee of Lehman Brothers Inc. is a director of this company.
C-Lehman Brothers Inc. makes a market in the securities of this company.
G-The Lehman Brothers analyst who covers this company also has position in its securities.
Headline: Comverse Technology: Reports Strong 4Q97 Ahead of Expectations
Author: Tim Luke 1(212)526-4993
Rating: 1
Company: CMVT
Country: SEO CUS
Industry: TELECM
Ticker : CMVT Rank(Prev): 1-Buy Rank(Curr): 1-Buy
Price : $43 1/32 52wk Range: $55-30 Price Target: $55
Today's Date : 02/19/98
Fiscal Year : DEC
* Post close yesterday, Comverse Technology reported strong 4Q97 (stand alone pre Boston merger) earnings of $0.44 vs. $0.33 in 4Q96 (+32%) beating the consensus est of $0.42 and our high end estimate of $0.43 by a comfortable margin.
* Revenues in 4Q97 grew 33% YoY to $77.6M, ahead of our est of $74.2M. Network Systems (e.g. voice mail) increased an impressive 41% YoY, while Information Systems (21% of sales) grew 10% YoY. Backlog increases to a record $87.6M.
* Gross margins stable QoQ coming in at 57.6% and up from 57.4% a year ago. Operating expenses (R&D and SG&A) were in line with expectations at 14.0% and 26.2% of sales respectively.
* Balance sheet strengthens with cash increasing to $275 million. Receivables move from 98 days in average in 3Q97 to 93 days in 4Q97, Inventories move lower from 100 to 97 days in avg.
* Believe outlook for global enhanced services market leader remains strong. Merger on tract. Asian sales on target. Reiterate 1-Buy rating, price target range of $55-60 or 22-25x our conservative 1999 est of $2.45.
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Stock Opinion & Outlook
Following the release of impressive results from CMVT's last quarterly results as a stand alone entity, we believe the outlook for the newly combined Comverse Tech. and Boston Technology remains robust as demand for enhanced service continues from both wireline and wireless service providers. Benefits from enhanced services such as voice mail, information services, and short text messaging, include additional revenues streams and increased subscriber fees. We consider the new company is currently benefiting from strong order momentum from wireless customers in the U.S. and Europe such as Sprint PCS, Deutche Telecom Mobile in Germany, and Omnitel in Italy. In addition, CMVT appears poised to increase its penetration at key RBOC accounts including the former NYNEX division of Bell Atlantic and also PacBell. We believe merger integration between CMVT and Boston is on tract with the new company likely to benefit from geographic and operational synergies, leveraging Boston's strong competitive position in the U.S., Japan, and Latin America and Comverse's market leadership in Europe and Asia. (We note CMVT holds approx. 40-45% of the global enhanced services market.) We maintain that steady growth in China, Japan, and Taiwan appears to be partially offsetting anticipated weakness in S.E. Asia. We continue to look for flat YoY sales growth in FY98 in the Asian region and believe that the current 1Q98 is tracking well. We look for modest growth from the Comverse Information Systems division (21% of sales in 4Q97) and approx. 10% of sales for the newly combined company of approx. 15%. The CIS division should
continue to benefit from technology transition from analog to digital recording and monitoring in both government and commercial markets.
Following these robust earnings, our recently published earnings estimates for the combined company are conservative. We note, the new Comverse Technology (Comverse & Boston) will now move to the January fiscal year previously used by Boston Technologies. Our price target range of $55-60 is based on our view that investors are likely to focus on CMVT's earnings growth in excess of 25% allowing the shares to achieve a multiple of approximately 22-25x our 1999 estimate of $2.45. |
