Pairgain/Adtran -2: Cos. Have Seen Worst Of Pricing Wars
By Tara Siegel
NEW YORK (Dow Jones)--Pairgain Technologies Inc. (PAIR) and Adtran Inc. (ADTN) are climbing in tandem Tuesday, as the two companies put the worst of the telecom-equipment pricing war behind them and look to increasing demand in their end markets, analysts said.
Those factors - amid a sector that rapidly consolidating - is behind Pairgain's 15.2% advance, and Adtran's 18.6% gain.
"There's a general shift in investor psychology that they've seen the worst in terms of their business models," said Greg Mesniaeff of Robinson-Humphrey Co., adding that frenzied merger speculation also is contributing to the stocks' activity.
"We've seen a lot of mergers in this sector, and I think the trend is far from over," he added.
Adtran's stock inflated just last week on those rumors, but Mesniaeff said the company announced that it wasn't for sale and denied rumors that Ericsson Telephone Co. (ERICY) and Northern Telecom Ltd. (NT) were potential buyers.
NationsBanc Montgomery Securities Inc.'s Al Tobia also doubted Adtran's promise as a takeover target, but Wall Street hasn't yet ruled out PairGain.
There has been talk of a buyout by an international player seeking distribution to U.S. carriers, said Hambrecht & Quist LLC's Joseph Noel. Moreover, Volpe Brown Whelan & Co.'s Timothy Savageaux called PairGain "the most attractive acquisition candidate in the communications equipment universe" in a recent research note.
Ericsson has been mentioned as a possible suitor.
More sector consolidation is a plausible notion considering the recent chain of events: Northern Telecom plans to acquire Bay Networks Inc. (BAY); Tellabs Inc. agreed to acquire Ciena Corp. (CIEN); and both Alcatel Alsthom CIE (ALA) and DSC Communications Corp. (DIGI), as well as World Access Inc. (WAXS) and Telco Systems Inc. (TELC), are slated to merge.
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Pairgain/Adtran -3: Both Seen At Least Meeting 2Q Views
The price-slashing war between the two telecom-equipment makers may be pivoting toward a turnaround, analysts said, a development that also could be aiding their stock prices.
Both Pairgain and Adtran provide HDSL - high-bit digital subscriber lines -
the technology that adapts traditional phone lines for high-speed data transmission. HDSL was the subject of a price competition waged from last summer until the start of the year, Mesniaeff added.
"Both have seen HDSL prices plummet 35%," Robinson-Humphrey's Mesniaeff said. "There's a growing sentiment that the worst is over."
NationsBanc's Tobia added that an upswing in the HDSL and T1 end-market spending may also be breathing life back into share prices.
"Spending was weak in May and has picked up pretty sharply in the last couple of weeks," Tobia said, adding that both companies should "comfortably" meet or exceed Wall Street's second-quarter estimates, which had been already revised downward.
Consensus estimates predict Pairgain will earn 17 cents a share for the second-quarter, and expect Adtran to post earnings of 28 cents a share.
Pairgain recently jumped 2 5/8, or 16.3%, to 19 1/8, on Nasdaq volume of 9.7 million shares, compared to an average daily turnover of about 2.4 million.
Adtran advanced 3 3/4, or 16%, to 27 1/4, with more than 2.0 million shares changing hands. Average daily turnover is 276,676.
Officials from both companies didn't immediately return calls seeking comment.
-By Tara Siegel; 201-938-5176
"Dow Jones News Service"
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