Ciena appears to be a winner in the sector. Tellabs doing poorly.
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January 25, 2011, 3:13 PM ET
TLAB Plunges: Morgan Stanley Says Sell, MKM Ups To Neutrale,
QCOM, ALTR, ASML: Winners Of ‘Ubernet,’ Says Piper
TXN: Cheering End Of Correction, But Doubts Remain
By Tiernan Ray
Shares of communications equipment maker Tellabs (TLAB) are down $1.40, or 20%, at $5.64 after the company this morning missed Q4 estimates and forecast Q1 below estimates as well.
Morgan Stanley’s Ehud Gelblum cut the stock Underweight from Equal Weight and cut his estimates, aruging that the company is losing business at AT&T (T) to Cisco Systems (CSCO) and Alcatel-Lucent (ALU) faster than he thought.
To recap, Tellabs said revenue rose 5% to $410.5 million, yielding EPS of 2 cents. Analysts had been expecting $418 million and 6 cents. The company said revenue will fall quarter to quarter, to a range of $315 million to $335 million in Q1, versus the Street’s $402.71 estimate. Cash flow from operatinos fell 45% from the prior quarter.
Gelblum writes that gross profit in the quarter of 38.2% was well below the 44% he was modeling. For Q1, he has been anticipating 45%, but the company today said it will be more like just 40%. As well as cutting his Q1 view to match the forecast, Gelblum cut his full-year estimate to $1.48 billion in revenue and a penny in EPS, from $1.62 billion and 31 cents.
Shedding further light on the matter, RBC Capital Markets’s Mark Sue today writes that Tellabs relied for too long on older products. Specifically, a fall in sales of the 5500 model of digital cross connect and weakness in the 7100 optical transport system were the primary factor in the 27% quarter-to-quarter fall in the transport category of products, and they also accounted for 6.5 percentage points of the decline in gross margin. He models $1.47 billion in revenue this year and 7 cents EPS. He also cut his 2012 EPS in half, to 55 cents. Sue cut his price target to $6 from $8 and reiterated a Sector Perform rating.
But different opinions are what make a market, and so MKM Partners analyst Michael Genovese upgraded upgraded the stock to Neutral from Sell, writing that the despite lowering his estimate for this year to $1.49 billion and 7 cents EPS, the shares have a fair value of $6, based on an enterprise value to projected sales multiple of 0.7 times.
Q1 could be the bottom, he writes. Results this quarter will be impacted by a “sharp deceleration in Tellabs’s AT&T business, and its optical networking sales at Verizon Communications (VZ). But after that, Genovese expects a bounce-back in sales at both customers. He also thinks international business will ramp up and make any subsequent quarter-to-quarter decline in revenue less steep. |
