| JDS Uniphase (JDSU): 40 15/16: There are a couple of competing notes out this morning on JDSU. Actually, D.B. Alex Brown spoke to its salesforce on Friday of the weakness at JDSU. This morning they are officially downgrading the shares to Buy from Strong Buy. DBAB's concern is based on its channel checks with a number of optical system vendors last week which show that the availability of a range of passive components has eased materially. Also, optical component customers indicated that lead times for a number of passive components have come down meaningfully. This was a dramatic change from what they were hearing from optical systems vendors only 2-3 weeks ago. ABN Amro, however, is discounting those views. So what's the effect on the short term earnings picture? It would be strange to think of JDSU missing a number as the company consistently beats numbers by usually a couple of pennies or so. The consensus on the Street is that the company will meet DecQ numbers with help from a very strong opening to the quarter, however, numbers could be guided lower for MarQ as the easing of lead times should result in some inventory build-up at customers. Nevertheless, we certainly expect a less bullish DecQ conference call when the company reports around Jan 25 than SepQ. Last quarter, JDSU said that demand for optical components was strong and there were no inventory issues with its customers. In fact, the company even guided its CY01 forecast higher by a dime. With current fiscal year First Call consensus of $0.81, the company trades at a p/e of around 50x which is not outrageous given its expected 40% EPS growth in 2002. Nonetheless, we would wait until after the company's conference call as the shares are still richly valued enough to take a hit on downward guidance. Even a safer bet would be to wait for WorldCom (WCOM) to report in early Feb as they have talked of cutting back on purchases of optical systems which in turn will cause optical systems companies to cut back with their purchases of JDSU optical components. As such, JDSU is very much a lagging indicator and still vulnerable. -- Robert J. Reid, Briefing.com |
