Market Gems:Stocks w/Strong Earnings and High Tech. Rank Message Board

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Market Gems:Stocks w/Strong Earnings and High Tech. Rank

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next

To: Riley who wrote (67257)	10/21/1999 10:28:00 AM
From: kendall harmon	of 120523

ANTC-here are Warburg Dillon Read's comments from this morning <<ANTC: STRAIGHTENING OUT ANTEC'S MARGIN ISSUES We cannot resist commenting on the rather spectacular fall in Antec shares following its 3Q99 earnings report. Somewhat reminiscent of last April when the company reported March quarter results, the stock was down 20% for what we consider unfounded and/or unknown reasons. * We believe the chief reason for the Antec downfall Wednesday was concerns about the sixth consecutive quarter of gross margin decline. While it is true that the 21.1% gross margin was lower than expected, it is equally true that the 8.6% operating margin is higher than ever (9.1% when goodwill is added back). This operating margin we believe is going to continue to expand another 100 basis points over the next couple of years. * It is quite possible that some of the analysis that led to the stock market debacle Wednesday did not appreciate the unique relationship between some of the Antec products' gross margins and their operating margins. Specifically, Antec distributes to U.S. cable operators cable modems and cable telephony gear from its joint venture with Nortel (NT-$52-Buy) at a flat 15% gross margin, no matter the volume. As Arris grows as a percentage of Antec's revenues -- from 23% in 2Q99 to 33% in 3Q99 we believe -- all other things equal Antec's gross margins must fall as long as the "other" Antec products sold have margins above 15%, which they obviously have -- over 30% in fact. The key distinction here is that the low 15% gross margin translates into an operating margin contribution of around 10%, which is higher than the 30%+ gross margin products! This leads to the unique situation of Antec benefiting when gross margins decline -- as long as the decline is due to a mix shift as opposed to a weakness in the higher- gross-margin businesses, that is. For this reason we do not see the mix shift as a negative, even though gross margins will probably continue to decline for this reason. With overall revenues being up -- beating estimates in the quarter -- we believe it is actually nothing short of a positive. * We maintain our Buy rating and $62 price target.>>

Report TOU Violation

Share This Post

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next