TLGD earnings due out in SIX DAYS -- ARTICLE:
"Bell suddenly tolls for Tollgrade -
Obscure telecom firm’s stock jumps as demand emerges for firm’s niche services "
By Jerry Cobb, CNBC
July 2 — Some of the best plays in the telecommunications arena may be the little known smaller firms providing “picks and shovels” to prospectors in the high-tech gold rush. Tollgrade Communications is a case in point.
THE CHESWICK, PA.-based company, which makes telecommunications test equipment, saw its shares skyrocket in June. That upswing has attracted interest from institutional investors and research analysts and pushed the little-known family business into the spotlight.
After plodding steadily along in obscurity for a dozen years
Tollgrade suddenly finds itself in the middle of the telecom revolution. Orders for the company’s test equipment are flooding in from phone and cable companies, which use the products to install and maintain the lines of their growing communications networks. “We’re just fortunate and happy that we’re getting the recognition we have been. Since Tollgrade’s been public we’ve met or exceeded analysts’ expectations since 1995. We’ve had a pretty good track record, and people are starting to see that right now,” said Chris Allison, Tollgrade’s chairman and CEO.
The company, with only 280 employees, reported profits of $10.6 million on sales of $61 million last year. Shares of Tollgrade started taking off in January after the firm posted a 250 percent jump in fourth-quarter earnings.
Money manager Glen Primark, of FMI Focus Fund, has owned the stock for the last two years. He says Tollgrade is one of the best broadband plays in his portfolio.
“They are a unique company. They have a unique little niche
within the testing area, which didn’t used to be sexy. But if someone wants to have high-speed Internet access with DSL or a cable modem, if you’re the carrier, you want to be able to deliver that service without any hiccups and that’s what they’re there for,” said Primark. Thanks to customers such as Sprint and AT&T and partners like Lucent and Nortel, Tollgrade is well positioned to benefit as phone and cable companies rollout new services, such as high-speed Internet access and digital TV.
But all that growth could mean glitches. Analysts say the biggest challenge Tollgrade faces is sustaining its growing presence in a niche area without losing its focus. The company must also try to stay on top of a fast-moving and highly competitive industry. Plenty of other formerly “hot” small telecom firms have seen their stocks sink and their fortunes fade.
The man who helped take Tollgrade public obviously disagrees. “Tollgrade is in a great position because they are keying in on some primary themes such as price competition, service quality competition and the introduction of new competitors into the mix,” said equity analyst Tim Slevin. His firm, Parker-Hunter of Pittsburgh, Pa. underwrote Tollgrade’s offering.
Now that Tollgrade’s stock is at an all-time high, the company is on the prowl for acquisitions. “We’ve got a good cash position. We’ve gota good currency in our stock. We’re looking for one and one equals three combinations — something that could get us in a new line of business, something strategic. We’ve got a good thing going here and we want to keep capitalizing on that,” said Allison.
Will Tollgrade be able to maintain its heady run? Investors
will get an update on July 12 when the company reports second-quarter earnings. |
