PDYN, Dain Rauscher comments from earlier this month
10:02am EDT 5-May-00 Dain Rauscher Wessels (Brown, Michael (612)313-1211)
PDYN:SB-Aggr;PARADYNE: WELL POSITIONED TO RIDE THE ENTERPRISE BROADBAND ACCESS
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
*The economics and performance of xDSL technologies should drive its adoption
by enterprises for broadband access to public data networks.
*Paradyne's GranDSLAM, FrameSaver, and OpenLane products combine to offer the
industry's most complete solution for this application.
*Based on this promising market opportunity and the excellent results from
1Q00, we are raising 2000 and 2001 revenue and EPS estimates. We reiterate
our Strong Buy-Aggressive rating.
Paradyne Networks, Inc.
NASDAQ:PDYN
Rating: Strong Buy
Risk: Aggressive
Price Target: $ 74
May 5, 2000
PDYN:SB-Aggr;PARADYNE: WELL POSITIONED TO RIDE THE ENTERPRISE BROADBAND ACCESS WAVE
We met with the management team at Paradyne yesterday and they articulated
their position and strategy for capturing share in the enterprise broadband
access market. We came away from the meeting extremely bullish on the
company.
We believe Paradyne is uniquely positioned to exploit three major trends in
enterprise networking.
||
||* Private leased-line enterprise backbone networks are being replaced by
public networks. These public networks are primarily frame relay networks,
but include some ATM and VPN networks. Industry sources estimate that the
installed base of leased line should decline over the next three years while
frame relay lines should grow at an 18% rate. Public networks deliver better
economics, superior redundancy, and more sophisticated management than
private networks can offer. Paradyne has a huge installed base in corporate
accounts and a seasoned direct sales force experienced in selling access
products in conjunction with public data network service providers.
||* xDSL will likely become the preferred technology for access to public
networks. Most access to public data networks is T1, fractional T1, or
56kbps. xDSL access is an economical replacement for T1 or fractional T1
access and a high performance replacement for 56kbps. Paradyne's GranDSLAM
products are capable of internetworking any flavor of xDSL or other access
technology with any public data network backbone.
||
||* The use of Service Level Management (SLM) and link diagnostics is growing
for mission critical applications accessing public data networks. We believe
that Paradyne's FrameSaver Flex will be the first CPE device to incorporate
SLM capabilites with xDSL support.
||
||Combined with the company's other technologies, we believe that Paradyne
will be the first company to be able to deliver the technologies required for
service providers to implement a complete, fully managed, CO-to-CPE frame
relay over xDSL solution.
||
||We expect major service providers to announce their use of the FrameSaver
product family in the near future, setting the stage an acceleration in the
market for frame relay over xDSL managed services late this year.
Stock Opinion
We are extremely bullish on Paradyne's prospects. Based on the impending
development of the enterprise market for xDSL and the outlook after the 1Q00
earnings release, we are raising our 2000 and 2001 revenue and EPS estimates.
For 2000, our new revenue and EPS estimates are $296 million and $0.37 per
share, up from $241 million and $0.25, respectively. For 2001, our new
revenue and EPS estimates are $373 milllion and $071 per share, up from $283
million and $0.37, respectively. We are maintaining our $74 price target,
reflecting a 6.5x multiple of revenues. This multiple represents a discount
to the group, and is very conservative given the uniquely promising outlook
for Paradyne. We continue to rate the shares Strong Buy-Aggressive.
Paradyne is a pioneer and leader in the development and marketing of
broadband access and service level management solutions for xDSL, frame
relay, and traditional DSU/CSU technologies. |
