Stratos May Be Headed for a Higher Altitude
As its post-IPO quiet period ends, expect to hear all
about how undervalued this fiber-optic gear maker is
INSIDE WALL STREET ONLINE
BY GENE MARCIAL July 18, 2000
Except for deep-pocketed, well-connected big
investors, few people manage to buy into initial public
offerings -- especially the hot ones. One recent IPO
scorcher was Stratos Lightwave (STLW), which
jumped to 50 a share on its opening day on June 27,
up from its offering price of 21. It has since sagged to
33. But some pros in the know argue that the stock is
now a great buy -- especially for those who were
kept out of the stock's IPO.
Stratos makes subsystems and components for
fiber-optics networks, including transreceivers,
connectors, and cable asemblies. These
components are incorporated into the optical
networking products of such companies as Nortel
Networks (NT), Cisco Systems (CSCO), Agilent (A),
Lucent Technologies (LU), and Alcatel.
Stratos is one new issue that is definitely still
undervalued and deserves serious post-IPO
attention, argue some money managers who have
been buying at the stock's current levels. Stratos,
they believe, is headed into the stratosphere -- where
the other stocks in the fiber-optic components group
have gone.
SHHH. One reason for Stratos' flattish behavior since
hitting the mid-30s: The company is still in its
four-week "quiet period," when both it and its
underwriters aren't authorized to publicly comment on
the stock. That quiet period ends on July 21. So the
pros expect the stock to bolt again after that day,
when analysts, the company, and its fans can start
talking up Stratos in full force. Some pros who know
the company -- and who were in on the IPO -- have
been buying more shares in the open market.
One such investment manager in San Francisco is
convinced that the stock could hit 100 in 12 months,
based on Stratos' products and the big moves that
the company's peers have made. This money pro
declined to be identified because he's privy to some
insider analyses and estimates on Stratos, being
very close to some of the IPO's underwriters, which
were spearheaded by Lehman Brothers and CIBC
World Markets.
"The stock is way undervalued when compared to
the market cap of Stratos' rivals, including Avanex
(AVNX), New Focus (NUFO), and Sonus Networks
(SONS)," says the money manager.
UNPROFITABLE PEERS. One analyst estimates
that Stratos will generate revenues of about $110
million in 2000 and around $170 million in 2001. And he
expects the company to continue making money. He
figures that Stratos will earn 12 cents a share this
year and 22 cents in 2001. At its current price of 34,
Stratos has a market cap of $2.1 billion. Compare
these numbers those of its peers and you'll realize
how undervalued Stratos is, argue some of its
supporters.
Avanex, which is expected to post revenues of $50
million this year, trades at 162 a share, has a market
cap of $10.5 billion, and it has yet to make money.
New Focus, also expected to post revenues of $50
million in 2000, is trading at 132 a share, with a market
value of $7.7 billion. It isn't making money yet, either.
And Sonus, also not yet profitable, is expected to
post sales of $30 million this year. Trading at 186 a
share, Sonus has a market cap of $11 billion.
When investors hear more about this, shares of
Stratos should get a lot more attention, says an
analyst at one of the underwriting firms. No matter
how you slice it-- by products, customers, or market
capitalization -- "little-known Stratos is way
underpriced when compared to its close rivals," says
the analyst.
Stratos Lightwave Shares Are Undervalued, Business Week Says
By Ashley Gross
Chicago, July 18 (Bloomberg) -- Stratos Lightwave Inc.
shares are undervalued compared with competitors in
the fiber-optic equipment business because Stratos is
profitable, Business Week reported in its ``Inside Wall
Street'' column online. Stratos shares could hit 100 in
12 months based on the company's products and
share movements of other
telecommunications-equipment makers, said an
unidentified investment manager in San Francisco.
Stratos could earn 12 cents a share this year and 22
cents next year, while competitors such as Avanex
Corp., New Focus Inc. and Sonus Networks Inc. still
aren't making money, the magazine said, citing an
unidentified analyst.
Stratos shares, which have risen 65 percent since its
initial public offering, fell 1/8 to 34 9/16 today.
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