MRV COMMUNICATIONS, INC.* (MRVC)-MAINTAIN BUY; IN-LINE
QUARTER WITH RETURN TO PROFITABILITY;
Price: $14.38 52-Wk Rng: $22.38-$5.06 12-Month Target: $21(New) Investor Suitability: Aggressive Growth
Qrtly --1Q-- --2Q-- --3Q-- --4Q--EPS
Curr Prior Curr Prior Curr Prior Curr Prior
12/00E§ $0.03 NA $0.06 NA $0.06 NA $0.08 NA
12/99E§ ($0.03)A $0.02A $0.02 $0.05 $0.02 $0.09
12/98A§ $0.26 $0.31 $0.06 ($0.09)
UNLOCKING ASSET VALUES IS A NEAR-TERM FOCUS
o MRV Communications reported revenues of $73.3 million ahead of our estimate of $69.1 million, while reported net income of $525,000 and EPS of $0.02 were in line with our estimates of $470,000 and $0.02, respectively. Gross margin improved to 35% from 33.9% in the first quarter, and the strong dollar negatively affected revenues by approximately $2-$3 million.
o We are adjusting our earnings model to reflect the aggressive pace of investment in R&D and sales & marketing for startups, which should hurt near-term earnings. For 1999, we are raising our revenue estimate to $288.4 million from $283.3 million and lowering our EPS estimate to $0.02 from $0.12. For 2000, we maintain our revenue estimate of $313.0 million and lowering our EPS estimate to $0.23 from $0.51. We are raising our 12-month price target to $21 from $14 to reflect the potential positive impact from asset restructuring.
o The Board of Directors has approved formation of new subsidiary called Optical Access, which will include the lightwave components division. The company has retained a leading investment banker to look into a potential IPO/spin-off of Optical Access, which had revenues of $48 million in calendar 1998 and is on a current run rate of $63 million. This decision was prompted in part by the high current market valuations for pure plays in the optical networking/components space for companies such as JDS-Uniphase, SDL Inc and E-Tek Dynamics.
[Sector's note] They are being very conservative here in lowering their estimates for the current year and next. However, keep in mind that these new products are excellent and are aimed at the CARRIER market. No revenue from them is yet factored in, as there is nothing to base on yet. If these products are winners (and I think they are), future estimates will be revised many times next year as contract wins come in. Nothing from Gruntal or MRVC will reflect that yet (nor should it), but this is what MRVC is going for - and this is why I stay long. |
