RESEARCH REPORT FOR JDS:
* NOTE: please note disclaimer at bottom
DATE: Fri-Jan-23
FIRM: Nesbitt Burns
ANALYST: Andreas Hoppe
"JDS Reports Q2/98 EPS of $0.45 versus $0.21 -- Close To Expectations, Minor Upward EPS and Target Price Revisions"
Current Price (1/22): $84.00
52-Week Range: $95.00-$27.20
EPS (FY-May)
- 1997A: $0.92
- 1998E: $1.68
- 1999E: $2.30
P/E
- 1998E: 50.0X
- 1999E: 36.5X
Mkt Cap: $2.1b
Div: $0.0
Yield: 0.0%
Rating/Target: 3 / $96.00
EVENT:
JDS FITEL reported Q2/98 fully diluted EPS of $0.45 versus $0.21 a year ago. We were looking for $0.43 per share.
IMPACT: Positive. JDS' ability to sustain its growth has been reinforced yet again.
DETAILS and ANALYSIS:
Revenues of $53.3 million were up 102% y/y and 10% sequentially. The company's gross margin was 51.7% versus 52.9% in the year-ago period and 52.4% in the previous quarter.
Growth has come more from JDS' manufactured products than from its resale products. The gross margin was lower due to product mix, the impact of the company's OCLI joint venture, and some pricing pressures.
R&D spending expanded 30% sequentially. Given the rapidly evolving markets in which JDS operates, the company must continue to invest in this area and we expect R&D spending to rise again in future quarters.
JDS is working towards securing some long-term relationships with some of its customers, which could give the company some improved visibility down the road.
JDS is very pleased with its two 1997 investment decisions: a joint venture with OCLI, and a 49% equity investment in IOT. JDS is pursuing discussions on various fronts for other possible alliances, joint ventures or acquisitions (recall that the company raised $118 million last fall).
JDS is clearly planning to grow. Although S,G&A did not increase significantly quarter-to-quarter, JDS did announce several management appointments (in the areas of operations, sales, strategy and business development, and finance). At the same time, staffing and floor space have continued to expand. During the quarter, the company added about 400 employees (bringing the total close to 1,600), and leased additional floor space. As was announced two weeks ago, JDS
also purchased land upon which it will construct a campus facility. This should be ready by the fall. All of these developments point to planned continued growth at JDS.
FINANCIAL FORECAST:
Given that the results were only slightly above our expectations this quarter, we have made only modest adjustments to our model. Our fiscal 1998 fully diluted EPS estimate has risen from $1.60 to $1.68. We do expect continued small sequential revenue growth in the third and fourth quarters. Our new fiscal 1999 estimate is $2.30 (was $2.19) and our fiscal 2000 estimate has been raised to $3.20 (was $3.05).
CONCLUSION and RECOMMENDATION:
JDS continues to put up impressive growth numbers and, over the long term, the stock should perform very well. That being said, even after the price decline on reporting day, the stock trades at close to 37x our fiscal 1999 earnings estimate, which does not provide significant upside potential for those with a shorter-term focus. Our new 12- month target price is $96.00 (was $93.00). We continue to rate JDS FITEL a 3 with a long-term buy recommendation.
--------------- fine print / disclaimer -----------------------------
The opinions, estimates and projections contained herein are those of Nesbitt Burns Inc. ("NBI") as of the date hereof and are subject to change without notice. NBI makes every effort to ensure that the contents herein have been compiled or derived from sources believed reliable and contain information and opinions which are accurate and complete. However, NBI makes no representation or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions which may be contained herein and accepts no liability whatsoever for any loss arising from any use of or reliance on this report or its contents. Information may be available to NBI which is not reflected herein. This report is not to be construed as, an offer to sell or solicitation for or an offer to buy, any securities. NBI, its affiliates and/or their respective officers, directors or employees may from time to time acquire, hold or sell securities mentioned herein as principal or agent. NBI may act as financial advisor and/or underwriter for certain of the corporations mentioned herein and may receive remuneration for same. NBI is a wholly-owned subsidiary of The Nesbitt Burns Corporation Limited which is a majority owned subsidiary of Bank of Montreal.
TO U.S. RESIDENTS:
Nesbitt Burns Securities Inc., an affiliate of NBI accepts responsibility for the contents herein, subject to the terms as set out above. Any U.S. person wishing to effect
transactions in any security discussed herein should do so through Nesbitt Burns Securities Inc.
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