Today's watch list and earnings play: CACS act 0.20 exp 0.13 with revenues of 179.5% I fell for thicompany only about 2 short months ago. it's been my top 10 buys together with the group HLIT, ETEK, GALT, ENTU, DISH, GMST and CREE.. DISH has since gone into correction but CACS chart yesterday looked marvelous. I hope it does tomorrow what HLIT did today. CACS had 4 point intraday range today.
Reprinted from today's watch list:
****Carrier Access: Well Connected to Growth
by Chris Bulkey 6/14/99
When you consider buying a high multiple technology stock in this nervous
market environment, you need to look for a pullback in the share price.
That is exactly the opportunity given to investors by the recent
volatility in the technology sector.
Case in point: Carrier Access (NASDAQ:CACS - news) . After reaching a
52-week high of $80.37 on March 31, its shares have pulled back more than
50%, to a recent $37.88 as investors ponder the near-term direction of
monetary policy.
Carrier Access provides multi-service digital access equipment (MDA) to
competitive local exchange carriers (CLECs), wireless carriers and
Internet service providers. Essentially, the company's products connect a
carrier's end user to the appropriate digital access lines.
The products are commonly referred to as "last mile" solutions, as they
bridge the final gap between the end user and the carrier. The company's
products enhance the delivery of both voice and data traffic.
Since its inception, Carrier Access has focused on serving the CLEC
equipment market. Due to market share gains and rapid access line growth,
the CLEC segment is one of the most attractive in the network
infrastructure industry. A recent report from US Bancorp Piper Jaffray
indicates that CLEC access lines, although having doubled in 1998 to over
2.7 million lines, currently serve less than 5% of the roughly 50 million
business lines in the United States. This leaves ample opportunity for
further penetration, which should benefit equipment suppliers like Carrier
Access.
The report goes on to project that capital spending by the 12 largest
CLECs will increase more than 25% in 1999 to over $5 billion. While their
expenditures have been focused on adding enhanced voice services, they are
increasingly adding Internet and data access to their service offerings,
which bodes well for Carrier Access.
Since its IPO back in July 1998, the company has positioned itself very
well within a high growth industry. For the first quarter of 1999, ended
March 31, revenue rose 201% to $21.7 million from the prior year, and
increased 19% sequentially. Earnings came in at $0.19 per share versus
$0.05 in the first quarter of fiscal 1998, excluding a preferred stock
dividend from the prior year, which was terminated by the conversion into
common shares at the time of the IPO.
Analysts are certainly underestimating the company's earnings power, as
first quarter earnings exceeded the First Call consensus by 111% and by an
average of 91% over the past three-quarters.
Despite a gradual decline in average selling prices (ASPs), which was in
line with previous management guidance to protect market share, margins
improved sharply due to continued manufacturing improvements. Gross
margins came in at 59%, a sharp improvement over the 47.9% reported in the
prior year, as well as the 55.7% result from the fourth quarter. Effective
expense leverage sent operating margin soaring to 32.6% from 14% in the
prior year's period.
No surprise, consensus estimates have been inching up over the past four
weeks. The current First Call consensus for the second quarter is $0.13
per share, which should be achievable in light of the company's propensity
for upside surprises and absence of swelling inventories or receivables in
the first quarter.
The company's cash flow is also accelerating. Last year Carrier Access
generated $9.6 million in operating cash flow, which was nearly 40%
greater than net income of $6.9 million. In the first quarter operations
generated another $5 million in cash, another positive indicator.
The balance sheet is extremely solvent with $58.5 million in cash and
securities ($2.32 per share) and no debt. Both receivables and inventories
have been reduced sharply as a percentage of sales indicating that
favorable working capital trends remain in tact. A trailing twelve-month
Return on equity of 25.8% (according to Market Guide) helps to justify a
strong outlook for sustainable growth.
So, Carrier Access on track to meet the 1999 estimate of $0.63 per share.
In 2000, earnings are projected to increase 35% to $0.85 per share, which
leaves the shares valued at 42 times forward estimates.
The shares certainly aren't cheap, but we believe that the recent pullback
in price, along with strong earnings momentum help justify a premium
multiple.
Now, keep in mind that when the shares hit their 52-week high of $80.37,
the forward multiple was about 100 times. High growth companies in hot
industries do not come cheap, but the recent pullback leaves Carrier
Access shares more than 50% cheaper than they were just three months ago |
