ASND: Management Expressed Increased Confidence at Recent Conf
02:00pm EDT 4-Aug-97 EVEREN Securities ASND
EVEREN Securities, Inc. Equity Research Note
July 30, 1997
Christin Armacost
(312) 574-5940
Company: Ascend Communications, Inc. (ASND - $53 1/8) a/o 8:00am CDT
Industry Networking/Telecom
Int. Term Rating: 1 - Outperform Target Price: $74
Long Term Rating: 1 - Outperform Target Price: $88
Suitability: High Risk
Ascend Communications management expressed increased confidence
at its recent analysts conference. We believe outlook for 2nd
half of 1997 is brighter.
Dividend: Nil PE1997: 39.4x Bk Value 97: $3.88
Yield: Nil PE1998: 29.0x ROAC 97: 33.5%
97 ROE: 37% Mkt. Cap: $10.854 bil.
Inst. Hldgs: 89% 5yr est. EPS growth rate: 23%
Insider Hldgs: 5% Shares Outstanding: 200.1 million
52-Wk. Range: $80.25-$36.125
FY: Dec 31 Next Reporting Date: 10/97
EPS
1996A 1997E 1998E 1999E
Q1 $0.15 $0.31(A) $0.41 $0.53
Q2 0.23 0.31(A) 0.45 0.56
Q3 0.29 0.35 0.47 0.59
Q4 0.32 0.39 0.50 0.62
Tot $0.99 $1.35 $1.83 $2.30
Consensus: $2.00
Revenue ($M)
1996A 1997E 1998E 1999E
Q1 $148.1 $292.7(A) $417.4 $546.0
Q2 205.6 311.7(A) 456.5 580.9
Q3 248.8 339.7 475.7 611.3
Q4 287.8 381.7 513.1 645.6
Tot $890.3 $1,325.8 $1,862.6 $2,383.9
Ascend's annual financial analysts conference highlighted several
positives that increase our confidence in the company's ability
to combine the two companies, exploit new opportunities, and
continue to exceed industry average revenue growth:
* Ascend stressed that it has not lost market share due to its
inability to ship its 56K modem cards for the TNT.
The 56K modules have been shipping for approximately 3 weeks
and the company is seeing no immediate signs of the issues that
had previously caused its delay. Furthermore, the company has
also indicated that its backlog for 56K is strong.
* The company anticipates the service provider market to pick up
in the second half of the year.
This is important for a couple reasons. First, it means
continued demand for remote access. The company suggested that
they expect telcos to continue to both invest in, and acquire,
data services (such as Internet access), a benefit to Ascend.
Second, they expect to see a pickup in the WAN switching market,
a benefit to Cascade. This is important because the WAN
switching market had been characterized as slow in the first
half, both by Ascend and its competitors.
* Ascend is managing Cascade's quarters better.
By slowing down Cascade's growth in the first half, Ascend
could increase the company's backlog, enabling the quarters to be
more linear, and manage its costs better (such as supplies and
discounts offered to customers). This conservative approach
increases the company's ability to forecast earnings.
* International opportunities remain strong.
Historically, international revenue accounted for about one-third
of traditional Ascend business and only about 20% of Cascade's.
The company was exceptionally optimistic about its ability to
increase Cascade's international contribution and even suggested
that the combined company could derive 50% of its revenue
internationally by as early as Q4. We believe this mix is
greater than what most analysts currently anticipate.
Overall, the tone of the Q&A was fairly optimistic about the
strength of both Cascade's and Ascend's stand-alone business, as
well as the potential for greater opportunities as a combined
company. We believe the comments are consistent with our
investment thesis and, therefore, we reiterate our 1-1 rating.
Additional information is available upon request.
Time: 8:50 AM cdt S&P 500: 943
The report herein is not a complete analysis of every material
fact respecting any company, industry or security. The opinions
expressed here reflect the judgment of the author at this date
and are subject to change without notice. Information has been
obtained form sources believed to be reliable but is not
guaranteed. EVEREN Securities, Inc. and/or its officers,
directors, employees or members of their families and investment
portfolios managed by the firm or its affiliated companies, may
have an interest in the securities and/or options of the issues
described in this report, and may purchase, sell, trade or act as
a market maker while this report is in circulation.
EVEREN Securities, Inc. makes a market in the shares of Ascend
Communications and may deal as principal.
Copyright 1997 by EVEREN Securities, Inc.
First Call Corporation - all rights reserved. 617/345-2500
END OF NOTE
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