Scientific-Atlanta edges up after sharp drop
By Paul Simao
ATLANTA, Aug 17 (Reuters) - Shares of television set-top box maker Scientific-Atlanta Inc.<SFA.N>, hit this week by a selling frenzy that pushed them down more than 20 percent, rebounded slightly on Thursday as the company said it was bewildered by the sudden drop and analysts said they smelled a buying opportunity.
Norcross, Ga.-based Scientific-Atlanta, one of the largest makers of set-top boxes that link televisions to cable systems, closed at 74-7/16 a share on Thursday on the New York Stock Exchange. That was up 2-13/16 from Wednesday, but down nearly $20 a share from last Friday's close.
The share drop came just weeks after Scientific-Atlanta reported a stellar quarterly profit that handily beat Wall Street expectations.
In the last 52 weeks, the shares have swung between a low of 22 and a high of 94.
"I think basically that this is a very hyper market," said Charles Kaplan, analyst with Herzog Heine Geduld. "People have a lot of profits locked up in it and they get nervous. Not everyone is a long-term holder."
Investors' nerves were rattled on Monday when an analyst with Gerard Klauer Mattison downgraded the stock to a neutral from a buy, partly because shares had reached a price target of $88.
The slide continued on Tuesday when Philips Electronics <PHG.AS>, a key European rival to Scientific-Atlanta, signed a deal to supply a million digital set-top boxes to AT&T Corp. <T.N> as part of a new business alliance. Analysts, however, said reaction to the Philips deal had likely been overblown.
"That was not a surprise to us. We wouldn't have expected Scientific-Atlanta to get any of that business," said Timothy Long, analyst with Merrill Lynch in New York.
"We think this is a good buying opportunity," said Long, who has a 12-month target price of $110 on the stock.
In a statement released on Thursday, the company said it knew of no reason relating to its operations that would account for the recent unusual trading volumes and price swings in its stock.
The company reported in late July that it earned $59.1 million, or 35 cents a share, in its fourth quarter of fiscal 2000, compared with a profit of $47.3 million, or 30 cents per share, in the same period last year.
Analysts on average had forecast the company to earn 27 cents per share in the second quarter, according to First Call/Thomson Financial, which tracks consensus data.
Scientific-Atlanta's growth has been fueled by strong demand for a number of end-to-end cable products -- from transmission equipment to its Explorer digital interactive set-top boxes.
Earlier this year, the company said it would boost production capacity to meet rising demand for its boxes, which are designed to offer features such as Internet services.
By January, Scientific-Atlanta expects to be able to produce 1.3 million of the boxes per quarter compared with current production capacity of 1 million units per quarter.
"This company has assumed center stage in the end-to-end cable infrastructure supply market. What Nortel is to telecom equipment, these guys are to cable," said Greg Mesniaeff, analyst with Robinson-Humphrey in Atlanta.
Mesniaeff, who has a buy rating with a 12-month price target of $110 on Scientific-Atlanta, said the stock had become the bellwether cable equipment play since rival General Instrument Corp. merged with Motorola Inc. <MOT.N> this year.
Analysts cautioned investors to expect volatility from high-tech stocks such as Scientific-Atlanta. "I would not be a seller at this point and I would only buy if I had the ability to withstand this kind of turmoil in the stock," Kaplan said. |
