Goldman moves price target higher
Outlook continues to offer upside
March 1, 2007
What's changed
(1) Preliminary 4Q06 results were $0.01 better than expected, driven primarily by a stronger top-line of $79 million vs. the consensus and our estimate of $68 million. We believe strength in the quarter was wide spread, though Cingular and KDDI continue to be strong contributors. (2) Slightly lower gross margins and higher opex due to added cost of stock option review resulted in just $0.01 beat in EPS. (3) Management guided for 2007 growth to be above its long term market growth rate of 20-25% growth, with Q2 outpacing Q1. (4) Sonus did not file full financials and now expects to restate prior financials as a result of its stock option review.
Implications
Long term demand trends remain positive, supporting our view of 20%+ top-line growth through 2008, with continued solid execution on cost controls likely to unlock further leverage in the model. As a result, we believe Sonus is on track to achieve the upper end of its long-term operating model of 17-20% operating margins in 2H07. However, while Sonus continues to make progress on improving its financial operations related to revenue recognition, forecasting quarterly trends remains challenging and could lead to near-term share price volatility. We are increasing our FY06, FY07, and FY08 Rev/EPS estimates to $278 million/$0.19, $353 million/$0.31, and $425 million/$0.40.
Valuation
We are increasing our 12 month price target to $9.25 from $5.50 which assumes a multiple of 23x our revised FY08 ex-ESO EPS of $0.40. 23x is in-line with the current median multiple for commtech growth stocks. |
