CSFB on SONS
Action. We would be aggressive buyers of SONS’s shares in wake
of announcement of 1Q06 results.
• Results. SONS reported 1Q06 REV/EPS (excl. FAS123R) of
$60mln/$0.03, vs. CS and Street consensus estimates of
$52mln/$0.01 and $54mln/$0.01, respectively.
• Good. (1) REVs//EPS. REVs of $60mln were well above our and
Street consensus forecasts and together with opex discipline drove
the $0.02 EPS upside. (2) Visibility. Enhancing future outlook, SONS
delivered the REV and EPS upside without the benefit of DT or KDDI,
which have yet to generate recognized REVs. SONS also noted
robust and increasing customer activity, including a number of new,
unannounced customer build-outs underway in Europe, incl, we
believe, one or more add’l PTTs. 51 total customers, up five, or 10%,
from last quarter. (3) Cingular. Cingular declined to less than 10% of
REVs, which should attenuate whatever perception of risk remains
regarding potential loss of this account. (4) Motorola Wireless
Deployments. Enhancing SONS’s market position, MOT generated
over 10% of total REVs for wireless applications.
• Bad. (1) Book-to-Bill/Deferred Revenues. Book-to-bill was less
than 1.0, while deferred rev.s declined Q/Q by $19.9 mln to $102.2
mln. While these numbers offer grist for the negative call, March 1Q
is seasonally soft, deferred rev.s increased Y/Y by 10%, and shipped
and billed rev (not in deferred) increased Q/Q by $10 mln to $15.3
mln. (2) GM. GM declined Q/Q by 180 bps to 61.7%, but off of strong
4Q05, and was adversely impacted by MOT OEM rev.s.
• Estimates. We have increased our FY06 and FY07 REV/Pro Forma
EPS (incl. FAS123R) est.s to $255mln/$0.12 from $242mln/$0.06 and
to $323mln/$0.26 from $317mln/$0.22, respectively.
• Valuation. Applying an unchanged 26x multiple to our new FY07
$0.29 Pro Forma EPS (excl options exp) estimate, our 12-month
price target for SONS’s shares increases to $7.50 from $7.00,
representing almost 50% upside over March 8th $5.06 close. |
