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Strategies & Market Trends : Gorilla and King Portfolio Candidates

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To: Apollo who wrote (4820)	8/14/1999 1:19:00 AM
From: Tom Ardnij	Read Replies (2) of 54805

Snas, With regard to the valuation for JDS Uniphase (JDSU). I thought you might appreciate Salomon Smith Barney's comments on it's valuation as of July 27. I might note that at the time they felt that both JDSU and INTC were undervalued relative to the tech sector. VALUATION We are warming to the notion that this company should trade at a multiple beyond its long-term earnings growth rate for several reasons: 1. Estimates will likely increase because of new design-wins that we believe will multiply the growth of this already fast growing market. 2. JDS Uniphase is unique--there is no company in the component area with its scale and breadth, and it is one of the few pure ways to play fiber-optics outside of the service providers. It's also a superb technology company, collaborating on a design level with many systems OEMs, and necessary to their efforts in optics. 3. The company has outstanding operating profit margins of about 32%, which look sustainable in the near and intermediate term based on the growth of the market and the high barriers to entry. JDS Uniphase should have a strong position in anything optical, a technology crucial for today's and tomorrow's telecommunications. The combined company not only has the resources of both Uniphase and JDS Fitel at its disposal, but a high-growth revenue base over which to leverage a continued high level of investment and a high-multiple currency with which to make acquisitions. The current 59 multiple on our new calendar 2000 estimate of $1.34 is slightly below the company's current revenue growth rate and considerably above a long-term growth rate of 40%-50%. That's a little rich, but given the strong visibility on the market and JDS Uniphase's solid position in it, we believe that the shares will go higher still, retaining this type of multiple on strong growth. Assuming nearly 50% growth in FY2001, we think that in 18 months the stock can go to nearly $125. Our intermediate-term target (12 months) is $108, based on weighting calendar 2000 and calendar 2001 as we approach the point where we would be using 2001 as our target year. ---------------------------------------------------------------------------- I think they are underestimating the room for price growth. JDSU owns it's segment and Lucent and Nortel buying from JDSU to support growth in the WDM arena. If you read the analyst's comments carefully you can't help but hear terms like high barriers to entry and control of unique technology. Sounds like Simian genes in an exploding field to me. The merger of JDS and Uniphase has formed an early Cisco like company in a very new field. Check out the chart and performance from the W&W portfolio. I think that JDSU will be one of our future nominees for Gorillahood. It's growth is sooooo consistent. Best Regards, Tom

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