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Strategies & Market Trends : Stock Attack -- A Complete Analysis
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To: Judy who wrote (5768)2/6/1998 2:22:00 PM
From: broken_cookie  Read Replies (3) of 42787
 
Judy re BAY,

This is the SSB analysts take on the meeting.

Summary:

Near term fundamentals on track.

Stage set for June quarter earnings surprise.

New product momentum is strong.

Reiterate our outperform rating and $35 price target.

Earnings forecasts unchanged.

p/e 98 27.3x
p/e 99 18.4x

The meeting:

Investment Conclusion

Bay Networks held its East Coast Financial Analyst Meeting in New York City lately. We viewed the message BAY management delivered as the most clearly defined and aggressive since the merger in 1994. Dave House's goal is clear: "To be the fastest growing co. in the networking sector." Bay Networks has clearly defined and overcome some of the obstacles in their path and continues to execute toward the operating model, revenue growth and market share goals. We reiterate our outperform rating and 35$ price target.

Key Points:

(1) Strategic vision in place. The focus of the presentation was BAY's goal to be the fastest networking company; fastest in the data networking industry sector with growth that outpaces the overall growth in the sector. The path to achieving success was well articulated and comprised of four initiatives.
1. To be the first to market with hot products. This is being accomplished through parallel product development programs and strategic acquisitions.
2. Broaden the customer base through improved company branding and enhanced reseller partner programs.
3. Deeper penetration into existing customer base by focusing service and market branding at the CXO level.
4. Penetrate carrier accounts by introducing new capabilities such as Virtual Private Networking, IP Telephony and cable modems.
Evidence indicates that the plan is in place and working. New product sales (products introduced in the previous 12 months) attributed to 59% of sales in the December quarter vs. 41% a year ago. BAY's customer base has grown by over 1000 in the last two quarters. BAY has recently achieved some strategic tier 1 customer account wins, including Bloomberg, as the end to end vendor of choice.This was the strongest BAY presentation in 4 years and demonstrates that the company continues to execute.

(2) Business fundamentals are strong. While the company faces weak seasonal trends in the March quarter, we believe current quater business momentum is solid. We are confident of our estimates for the near term and calendar 1998 based on three factors:
1. Extraordinarily good demand for the Accelar product is exceeding expectations, which gives us confidence for the near term estimates and the likely potential for an upside suprise in June.
2. Centillian business in Europe continues to contribute to sequential and Y2Y revenue growth.
3. Next generation 10/100 workgroup 350T will hit the market the market in March , which will contribute to gross margin expansion.
The company also indicated that inventories were slightly down from the december quarter and that operating model objectives were attainable.

Reaction: from Briefing.Com

Bay Networks Inc. (BAY) 30 5/8 +5/8: Adams Harkness raises its rating on computer
networking concern from "market perform" to "attractive" as gross margins are expected
to improve by 2% to 3% to about 55% by mid-year; also operating expenses expected to
expand less rapidly than revenues.....
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