CSFB from Today!
3Q07 Preview--New Tier 1 Win
Investment Thesis. One of our favorite investment ideas in communications
infrastructure, SONS has emerged as the leading competitor in the fast growing
service provider Voice over IP market, which is still emerging from its nascent stage
of development. While SONS’s operating model suffers from a fair degree of
volatility, we believe its market leadership together with significant market expansion
will drive significant upside over the long-term.
3Q07 Outlook. SONS is scheduled to report its 3Q07 operating results on
Thursday, November 8th at 4:45 PM ET (Dial-In: ). We expect both 3Q07 revenue
and P/F EPS (incl. ESO) results and 4Q07 guidance in-line with to above Street
consensus's estimates of $76.0mln/$0.01 and $96.8mln/$0.04, respectively.
Extending Mrkt Leadership--New Tier 1 Win. Our extensive industry checks
strongly support the view that SONS continues to build on its industry leading
position—and is in the process of extending its leadership to the nascent, emerging
Class 5 market opportunity. In addition to general commentary highlighting SONS’s
execution v. ongoing struggles by a number of its much larger competitors, our
industry checks indicate that SONS has secured a new top 10 global service
provider customer. We believe this build-out, scheduled to commence in 1Q08,
could generate well in excess of $100mln in revenue over the next two to three
years. Equally notably, the deployment is a Class 5 access application, which
represents the fourth such major Class 5 SONS win, and came at the expense of
one of SONS’s much larger competitors.
Estimates. We are updating our CY07 estimates to reflect SONS’s guidance,
revising our CY08 estimates to present a more conservative model—at $455mln and
$0.26 (excl ESO), still well above Street consensus’s $406mln and $0.16—and
introducing CY09 forecast of $584mln and $0.38 (excl ESO).
Valuation. Our revised 12-month $12 price target is driven by applying an
unchanged 30x multiple to our new CY09 $0.38 PF EPS (ex-ESO) estimate. |
