Thread:
A fairly good summary of investment ideas for the HFC related cable companies:
ideaadvisor.com
Cable Investments Anyone? Anyone?
by Todd Truitt
5:22:00 PM October 09, 2000 GMT
Consumers are ready for the broadband revolution, but,
is your portfolio? While a downturn in capital
expenditure by telecom service providers has sunk
many equipment stocks in the past month, demand
for broadband services remains strong. DSL and
cable modems are spreading like wildfire. Now may be
the time to take advantage of the huge price drops
in these stocks.
This boom in broadband demand creates the demand
for network upgrades. For cable, this means bringing
fiber closer to the customer in an architecture called
Hybrid Fiber Coax (HFC). In this architecture, data is
sent via fiber optic cable through a series of hubs to
local neighborhood nodes where coax drops carry the
data to the individual homes. Along this path, there are
a number of different companies that stand to benefit
from network upgrades.
Hubs
These are highly susceptible to the CAPEX spending by
service providers. If providers decide to wait for traffic to
ramp up before continuing upgrades, hub makers could
suffer. An example follows:
Harmonic: Announced it plans to post a loss of
$0.06-$0.09 per share, well below estimates of a
$0.12 profit for 3Q. Sales fell in Broadband Networks
unit, but are expected to grow next year. The
broadband networks unit includes fiber-optic
equipment like hubs and nodes.
Nodes
This is the transition between fiber and cable. Many of
these are needed as each serves about 500 homes. As
demand grows in a neighborhood, the nodes get
swamped and speeds decrease. Regardless of
expansion plans, providers will have to continue adding
these as consumer demand dictates. Below are two
examples:
ADC [ADCT: Nasdaq] and Antec [ANTC: Nasdaq]:
While earnings estimates for 2000 have slid a little
(about $0.02 per share), both have seen their stock
prices tumble. ADC is down 40% since August
despite analyst expectation of 60% growth for the
year. While slightly slower growth is expected from
Antec, its shares are trading at a 2000 price/earnings
ratio (P/E) of 21.8, well below the industry average.
Watch the upcoming earnings releases closely to
see if the telecom trouble that the market has priced
in will really affect these companies.
Access devices
These include cable modems and set-top boxes. These
products are almost entirely dependant on consumer
demand, which appears to be strong, and not cable and
telecom capital expenditure. Motorola will announce 3Q
earnings tomorrow, which should shed more light on the
how strong consumer demand really is. Scientific Atlanta
and Motorola are two examples.
Scientific Atlanta: The stock has been cut almost in
half from $95 in August to $52 today. This major
move occurred despite the fact that consensus
estimates have inched upwards in the last 90 days
from $1.11 to $1.29.
Motorola [MOT: NYSE]: While cable modems are only
a component of this large company, they should fuel
much of the growth this quarter. Motorola has seen
its P/E shrink this year as worries over wireless
handset sales have left the stock sitting below where
it was a year ago. If Motorola hits its numbers and
investors notice that earnings this year will be 53%
higher than last year, a turnaround for the stock may
be in order. |
