More Good news, but will it help?
C.E. Unterberg, Towbin still likes Finisar in notes 10/9/02
10/09/02 09:00 AM
Source: C.E. Unterberg Towbin
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Company Update
Symbol Rating Price Mkt. Cap. ‘02A ‘03E Price Target
FNSR 1 B/B $0.50 $95 $(0.21) $(0.17) $3
HEADLINE: Finally, Restructuring! Trimming Revenue Estimate
* Finisar finally announced a $5M restructuring that will further reduce its U.S. headcount and close its Hayward facility. It also will sell back certain assets to the management of Sensors Unlimited, expected to close in October, for $6M. FNSR will retain ownership of all Sensors’ intellectual property and move manufacturing to other facilities. These actions should allow FNSR to be cash flow break-even at revenues of about $55M per quarter. Cash burn in the FQ2 is expected to be to $15M––less than half the $32M burned in FQ1. Cash exiting FQ1 was $112M with convertible debt of $90, leaving net cash per share of $0.12. Combine the restructuring with lower cap-ex and improvements in its working capital position, and we think FNSR can meet its year-end cash balance goal of $70-$80M.
* Finisar did not update 2Q guidance, but channel checks with some competitors suggest that business is on track for a sequentially flat quarter. However, reflecting negative business shifts at some FNSR customers, we trimmed our full-year revenue estimate to $200M from $208M, leaving loss per share at $0.17.
* Although we certainly have been bruised by maintaining our B/B rating, current valuation is such that we are reluctant to downgrade the stock. In addition, while demand patterns appear to have slowed, we still think that FNSR has the best short and long-term growth prospects within our universe. But as the overhang from cash issues is unlikely to dissipate until the company breaks even in FQ4, for now, valuation may well be the best argument in FNSR’s favor. At 0.4X EV to FY03 sales, it carries one of the cheapest valuations in our universe. Our $3 price target is based on a 2.5X EV to sales multiple. It remains subject to the risk of an even slower rebound in IT spending in 2003. |
