From stockspecials.com ...
Stock special of the week
For The Week Beginning Monday September 13th:
JDS Uniphase (JDSU) $112.00
JDS Uniphase (JDSU) makes laser systems and equipment for fiber-optic telecommunications, signal processing, and laser-based semiconductor inspection. The company's chips are used in communications to increase the carrying capacity of optical fibers. Its dense-wavelength division multiplexers boost the capacity of networks and its test instruments monitor network performance.
In July, Uniphase completed its merger with JDS Fitel and changed its name to JDS Uniphase. The combination creates a powerhouse with unmatched product breadth. Uniphase's dominant market position in active components and JDS Fitel's market leading position in passive components provides original equipment manufacturers with a one-stop shop. Management has said there is almost no product overlap and significant customer overlap, which offers significant cross-selling opportunities.
At a recent analyst meeting, JDS Uniphase management noted that Ryan, Hankin Kent (RHK), a market research firm, increased its forecast for the optical component market to $5.5 billion from $4 billion for 1999 and sees the market expanding to $21.3 billion by 2003, for a compounded annual growth rate of 40 percent.
The submarine market is beginning to develop rapidly with the potential for up to $30 billion in investment over the next five years. JDS Uniphase, as the dominant submarine qualified supplier of components is nicely positioned. Submarine deployment represents fiber optic cable that goes underwater and connects different countries.
The cable television market is another area of deployment that will ramp-up as providers deploy more fiber into their networks. As cable providers introduce digital services such as Internet access and high definition TV, bandwidth will become a critical issue. Frost & Sullivan estimates that the market for interactive television products in North America will total $5 billion by 2006.
The merged company is doing very well so far. JDS Uniphase's latest quarter earnings came in at $0.48 per share, which was ahead of expectations. Management has recently given guidance for continued 15% sequential and 60% annual revenue growth. That should put calendar 2000 revenue close to $1 billion.
On August 31st, SG Cowen analyst Jim Kedersha initiated coverage of JDSU with a strong buy rating. Kedersha said JDS "is the leading merchant provider of fiber optic communications components to the telecom and cable television industries," and they are "well positioned to take advantage of network build and upgrade opportunities in the telecom space as demand grows for its lasers, modulators and amplification products used in communications systems."
JDS Uniphase shares should do extremely well as the company's 60 percent annual growth should continue for the foreseeable future. The stock trades at about 70 times next year's earnings but those numbers have upside potential to them and many institutions realize the growth ahead for JDSU and are gobbling up shares despite the valuation. With a multiple so close to the company's growth rate, the shares are not overvalued like they might seem upon first glance. The Stock Specialist's twelve-month target price for JDSU is $150 per share. |
