On briefing some details of Cowen analist's upgrade. Any idea what they infer by "run, don't walk," comment
3Com (COMS) 49 +2 7/16: Shares of this supplier of local area network (LAN) and wide area network (WAN) systems are getting a lift today from their soon-to-be spun off Palm Computing division. Goldman Sachs will serve as lead underwriter for the deal and has set a price range of $14-$16 for the 23 mln shares to be released under the ticker PALM. In addition to the $320 mln IPO proceeds, Palm will net an additional $225 mln from private equity placements to America Online (AOL), Motorola (MOT) and Nokia (NOK). SG Cowen analyst Chris Stix expects the post-pricing range of PALM to be in the $36-$42 range and as a result, he upgraded 3Com this morning from "neutral" to "buy." After the offering, 3Com will hold about 530 mln of the approximately 570 mln shares outstanding and the company intends to spin off the remaining PALM shares to 3Com shareholders as dividends. This is good news for 3Com owners as the Palm product line is performing very well showing 50% sales growth in the company's last fiscal quarter and gross margins of 43%. However, other than the Palm division, there is not much to be excited about at 3Com. The decision to spin off the Palm business was to allow the company to focus on their core networking operations which saw sales decline 12% sequentially last quarter. Their Personal Connectivity division performed better with sequential revenue growth of 15% last quarter, up from a sequential decline of 19% in the October quarter. However as Stix pointed out, the main products in this division, network interface cards (NICs) and modems, are becoming commodity goods and as such, subject to stiffer price competition and new technology risks. Still, 3Com does have some promising new projects in the works in such hot areas as voice-over Internet protocol (VOIP), wireless switching and high-speed Internet access. But the question remains what will be left after Palm? Stix advises you "run, don't walk," when: a) COMS stock price hits $60 to $65; b) one to two weeks following the PALM IPO, which is tentatively scheduled for sometime between February 22-29. - MG |
