The pros on EMLX
Emulex also began to run before we had an opportunity to tag it. The stock added 5 9/16 points or
13% in Tuesday's session.
Strong earnings and high visibility, however, give stock the opportunity to move meaningfully higher
from current levels.
Like the majority of leading technology names, Emulex has corrected more than 50% from its
52-week high. The designer of fibre channel host adapters and hubs was hit harder than most,
tumbling 84% from peak to trough... After Tuesday's bounce, stock sits more than 79% away from
its $225 1/2 high.
A stock's previous high in no way serves as indicator of post-correction upside. Able to think of
shopping cart full of stocks that once traded in the $70s or $80s, have given back 90% of their
gains, and will likely never again see the better side of $10 again.
What sets Emulex apart from these one trick ponies (the trick was to come public at the right time,
with a small enough float to attract traders) is that it is a real company (though it is of the turnaround
variety), with real earnings... For the quarter ended March 26, Emulex reported a 450% increase in
net income to $7.7 million or $0.20 a share... The company expanded revenue by 100% to $36.5
million... Taking into account a higher effective tax rate, net income actually increased 687% from the
year-ago period.
The earnings figure came in 2 cents or 11% above analysts' expectations, extending company's
streak of upside earnings surprises and double-digit revenue to four quarters... Should note that size
of surprise was much smaller than seen in the previous three quarters. We blame the inability to
deliver an over-the-top number this quarter for triggering the 50% skid in the stock post-earnings.
Breakneck earnings and top-line growth, the stock has to sport a P/E of 200 or more? Three weeks
ago your assumption would have been correct. But following the steep decline, which included a
single session dive of almost 50%, EMLX trades at just 49 times FY00 projected earnings... While
stock commands a premium to its 37% near-term growth rate, the issue trades on a discounted basis
relative to most of its peers.
A good earner with a P/E of just 49... There must be something wrong with the stock. The type of
market volatility experienced over the past week has made a lot of people paranoid... While
Emulex's fundamentals appear to be intact, recent accounting pronouncement (and subsequent stock
collapse) by MicroStrategy (MSTR) has a lot of investors attempting to guess who will be next to be
deflated by the poke of an accountant's pencil... In company's quarterly SEC filing, Emulex states
that it is currently undergoing examination by the Internal Revenue Service regarding the 1995 U.S.
tax return of its Puerto Rico subsidiary, which entered into a tax-free plan of liquidation for U.S.
income tax purposes in May 1998... We would not expect an unfavorable ruling by the IRS to have
a materially adverse affect on results. The only reason we mention it is because we've seen rumors of
accounting irregularities spun from less. In a nervous market, murmurs of "accounting issues" can
decimate a stock.
from briefing.com
*************
Hadn't heard of the PR IRS issue.
Jack |
