UBS Warburg report today:
07:07am EDT 20-Jul-00 UBS Warburg (US) (Anton Wahlman) WSTL EFNT RAMP NTPA CMT
WSTL: EXTREMELY IMPRESSIVE DSL CPE REVENUE; GROUP CALL
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UBS Warburg July 20, 2000
Anton Wahlman 212 821 3675 Jeffrey H. Susman 212 821 3458
Westell Technologies, Inc. (WSTL - NASDAQ) - Buy
US Communications Technology
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Price: 21.75 Div: Nil Tot Mkt Cap: 1.3b Est Debt/TC: N/A
Price Tgt: 50.00 Yld: Nil Shrs(In Class) 41m ROE: NMF
52 Week: 39.38 - 5 yr EGR: N/A Avg Vol(000): 1321 Ent Val: 526m
6.50 Est BV/Shr: 7.46 Cvt Secs: No
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FISCAL YEAR QUARTERLY ESTIMATES - EPS FISCAL YEAR ESTIMATES - EPS
1stQ 2ndQ 3rdQ 4thQ Prior EPS P/E Rev(M)
03/99 -0.18A -0.28A -0.26A -0.23A F99A -0.96 NMF 93.2
03/00 -0.09A -0.08A -0.05A -0.02A F00A -0.25 NMF 122
03/01 0.06A 0.07E 0.10E 0.13E F01E 0.21 0.35 NMF 570
03/02 0.18E 0.25E 0.36E 0.48E F02E 0.62 1.28 17.0 953
03/03 0.52E 0.56E 0.58E 0.61E F03E 1.08 2.27 9.6 1340
WSTL: EXTREMELY IMPRESSIVE DSL CPE REVENUE; GROUP CALL
SUMMARY:
DSL CPE vendors are strongly outperforming estimates, and none more than
Westell, which saw DSL CPE revenue increase from $16m to $62m sequentially.
This essentially closes the gap with Efficient for the ADSL Ethernet stand-alone
modem market. We are revising our EPS estimates in front of the morning's
conference call, although we are holding off on revising our year-end price
target of $50 until after the conference call. The basis for our final
valuation will most likely be our CY02 EPS estimate, which currently stands at
$2.15 tentatively before the conference call.
HIGHLIGHTS:
* Westell reported a spectacular $107m revenue number for the June quarter, very
substantially ahead of our $85m estimate. This was 100% driven by the very
significant ramp in DSL modems, which went from $16m last quarter to $62m. In
pure dollar terms, that $46m sequential increase is even better than Efficient Networks' (EFNT-$83-Buy) $40m sequential increase.
* It also means that Westell is not that far behind Efficient's DSL number for
its ADSL stand-alone modems (in particular Ethernet ones, as opposed to USB and
of course also PCI cards) is most likely, in our estimation, essentially on par
with Efficient. We also believe that Efficient's SDSL SOHO router business is
at least about as large at Netopia's (NTPA-$47-Buy), or around $25m.
* From a profit perspective, EPS of $0.06 beat our $0.04 estimate.
* The CPI conference services division had a weaker than expected quarter.
* We are taking the first stab at our new EPS estimates by raising our FY01,
FY02 and FY03 EPS estimates from $0.21, $0.62 and $1.08 to $0.35, $1.28 and
$2.27. We expect to obtain new guidance after the morning's conference call,
and emphasize that our new EPS estimates are only temporary and await the
outcome of the conference call and its aftermath.
* The truly outstanding DSL revenue recorded by Westell in the June quarter
matches our recent theme that the DSL CPE players were going to exit the
earnings season in great shape with strong upward revenue and EPS guidance. In
the consumer ADSL modem space, Westell and Efficient, together with Alcatel
(ALA-$71-Strong Buy), constitute the relatively benign competitive landscape at
the moment. The longer-term issues for we see Westell are the entry of smaller
new DSL CPE companies, and in the longer term also the soft modem PC OEM vendors, such as PC-Tel (PCTI-$32-Buy).
* We are not revising our $50 target price on Westell at this point, but given
our new (albeit tentative) CY02 EPS estimate of $2.15, we would expect to revise
both our target price and rating. Comparable companies trade around 40x such an
CY02 estimate. We will await the outcome of the conference call for our final
judgment. In the meantime, we strongly reiterate our Buy rating.
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