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Technology Stocks : Cabletron Systems (CS: NYSE)
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To: Jonathan C. Williams who wrote (4086)6/23/1998 3:23:00 PM
From: Doug  Read Replies (1) of 8358
 
J.C.W: I looked once more at your take of the cc. Here at-last are my comments.

Existing Report for Quarter.
Sales--------------366m
Cost of Sales------210m
Gross Profit-------156m
R&D----------------54m
SG&A---------------97m

As their Gross Profit is >40%, why would they lower their sights to 40%. In fact, they should increase it to 45%. As for SG&A, they could still cut some of the excess 3% fat (Cisco should be the norm). As forR& D, this indeed is the wild card. I have no idea what is the norm. It must surely be a spike function and not a constant one for all eternity. There are many ways to deal with this wild card.

If they can increase Sales and cut back on R&D expenses, this Company is off and running. Infact, if they have all the R&D expenses under control, the earnings could be quite good. All in all, I would agree the projections are +ve and I would give them more than a 50% chance to succeed. By floating off an Affiliate, they can subsequently get the R&D funding back from retained Earnings .

In any case on a take over basis, it is sales that matters. The P/S
is generally the deciding factor. Currently take-overs are made on a P/S of near 3. On that basis alone, CS is definitely a value play.
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