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Technology Stocks : Stratex Networks, Inc. (STXN)
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To: lazarre who wrote (992)7/21/2000 4:24:52 PM
From: Rob Preuss   of 1762
 
Found on Yahoo (purportedly from Briefing.Com)

Earnings season is always a volatile time with many stocks
surging on bullish news or getting blown up following some
type of disappointment. What this time period also presents
are numerous trading opportunities. DMIC comes into play in
this regard in the wake of their recent 1Q01 profit report
and the subsequent pummeling that saw the stock tumble nearly
30% at its intraday nadir. The question is whether this
presents an opportunity to step in at cheaper levels or to
follow through on the negative momentum.

Trading Points
The first step is to look at the report itself. DMIC
reported earnings of $0.12 a share compared to $0.00 a year
ago and actually beat the First Call consensus of $0.10. On
the revenue front the company reported sales of $86.7 mln vs
year ago of $66 mln for an increase of 31%. The problem arose
from the fact that the company failed to meet revenue
projections of $95 mln. There was speculation that sales of
the broadband product were weaker than expected and customers
in Europe delayed orders. The company stance was that
industry-wide component shortages presented short term
challenges to certain product lines. This could explain the
swift and severe punishment and the subsequent recovery off
of the opening low. Confined action at still firmly lower
levels followed into the close.
There was some further bullish news released with the
earnings numbers. Margins posted a significant increase to
35.2% from 27.5% last quarter. The shift to the wireless
broadband product lines and company efforts to reduce
manufacturing product costs were cited as the reasons for the
improvement. Also, new orders for Q1 were at an all time
high, rising to $126 mln vs the year ago quarter of $67.8 mln
for an increase of 86%. Rising demand for its Altium high-
capacity wireless product was given as the reason for the
dramatic increase. The company expects to continue to "ramp
capacity to meet customer demand with increasing
profitability." Finally, the companies DSO number (days of
sales outstanding) rose to 122. This is calculated by
dividing receivables by revenue and multiplying by the days
in the period. Rising receivables could present problems as
customers refuse to pay or return products but the company
stated once again that high demand was the reason. This time,
sales to South America and Asia, with longer than typical
repayment periods was said to have triggered the higher
number.
We have a bit of a mixed bag with the company attempting to
smooth over the decline in revenue and the higher DSO by
stating that they are a function of very strong demand.
However, the track record of DMIC supports the high demand
view with earnings for FY01 expected at $0.53 (+211.18) with
FY02 at $0.74 (+39.4%). Fortunately for this issue we have an
aid in helping to determine which side of this potential
trading opportunity to take, its 200 day moving average.
Including Wednesday, the stock has flirted with this average
on five occasions over the last 16 months. May 2000 marked
the only time the stock spent any time below the average but
only one close below was was seen before prices quickly
pushed back above again. At this time the average is at 29.
As long as prices continue to stabilize above this area DMIC
should remain positioned for additional appreciation with
potential back to the July high at 43 over the short term.
Failure to hold above argues for at least a retest of the
May/June lows near 22.
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