S&P's latest stock report on LU is optimistic (Buy, 5 stars).
Herewith some excerpts:
Overview - 27-JUL-00
For FY 01 (Sep.), we expect sales to increase 20%, driven by leading market positions in optical, wireless and data networking. The company's microelectronic segment continues to excel, with optoelectronic components growing at a triple-digit rate. While the company was late at rolling out OC-192 (10 gigabits per second speed) optical systems, it is ramping up production quickly. The company expects to triple its 10G business sequentially to 750 million units in the fourth quarter of FY 00. Gross margins in FY 01 will likely be around 43%, restricted by additional manufacturing capacity and weaker sales of circuit switches. Still, after a lessening of operating expenses, we see operating margins near the 17% range. After a lower tax rate of 31%, we forecast FY 01 EPS of $1.35, up 21% from our FY 00 estimate of $1.12.
Valuation - 27-JUL-00
Share of this leading telecom equipment maker fell sharply after a third quarter warning of lower profit growth, due to a slower than expected product transition to next generation switches and a ramp up in optical networking. However, these issues are short term in nature and will fade as LU hits full volume production and executes on its cost reduction plan. International sales were penalized by a delay of a major long-term foreign project, which was subsequently removed from future revenue guidance, but the likely redeployment of this project could add significant upside to FY 01 estimates. Despite the near term difficulties, LU still expects a healthy 20% EPS growth for FY 01, in line with its long term grown rate. Moreover, based on a sum-of-parts model, we estimate the recently announced microelectronic spin-off adding at least $10 incremental value to the stock. The current weakness presents a buying opportunity. |
