Robertson Stephens initiated coverage on Sorrento Networks on April 16, 2002. Below are the key points from their research report:
We believe that Sorrento represents an investment opportunity that has been overlooked by the capital markets due to the company's negative history. The company has gone through significant management improvements, successfully divested both Entrada and NetSilicon, and has emerged with a materially stronger balance sheet.
Although, the metro DWDM market is not expected to grow
materially on the intermediate term, we believe that Sorrento may derive modest near-term growth from its positioning in the segment of this market that is still deploying metro transport – Cable MSOs and Utilicoms. On the intermediate to long term, as traffic growth begins to improve, we believe that Sorrento may be able to grow into the large carrier metro transport opportunity.
We believe that Sorrento's solution is very competitive on both feature richness and performance to the current top tier metro DWDM solution that is being offered by ONIa,b (ONIS $5.46) and Nortel (NT $3.60). Sorrento's solution is, in our opinion, superior to Nortel's from a product perspective and may be more cost effective than ONI's product on a per feature set basis.
Our forecasts indicate that we expect Sorrento to show greater year-over-year revenue growth than ONI. Additionally, we believe that the company will still have cash in the bank after 12 months – financing its survival given a 2004 economic recovery. Despite these two facts alone, based on a 2003 price to sales multiple, Sorrento currently trades at a 83% discount to ONI Systems. Given the valuation discrepancy between Sorrento and its foremost competitor, we believe that investor expectations surrounding Sorrento's future are significantly low. |
