thestreet.com. Tellabs on Track for Strong Thursday Earnings Report [ASND reference]
thestreet.com
By Kevin Petrie
Staff Reporter
7/15/98 12:40 PM ET
Is Tellabs (TLAB:Nasdaq) reporting earnings or throwing
a party?
Shareholders have few doubts about the second-quarter
earnings, scheduled for release before trading begins
Thursday. If three money managers owning loads of the
stock know anything -- and they think they do -- Tellabs
sits in fine fettle as it prepares to button up two mergers
later this year.
"I just know that the number's going to be good," says Jeff
Diecidue, managing director with Unicom Capital, a
money management firm. After checking with sources,
Diecidue is estimating that Tellabs will beat the First Call
consensus estimate of 42 cents per share by one or two
pennies. It posted 32 cents one year ago. Diecidue's firm
owns Tellabs and is adding to its stake in Ciena
(CIEN:Nasdaq), which Tellabs is acquiring in a one-for-one
stock swap. The deal, expected to close in September,
now is valued at $8.1 billion.
Diecidue is particularly pleased that share prices of the
betrothed companies have converged nicely. Together, he
says, the combined company will stand second only to
giant Cisco (CSCO:Nasdaq) in the food chain of
networkers, the companies that build the innards of the
Internet. Tellabs traded 1 3/8 higher at 76 3/4 early
Wednesday, while Ciena was up 1 1/4 at 75 3/8.
Tellabs already has climbed more than 40% this year.
With a market capitalization of $13.7 billion, Tellabs
trades at 52 times trailing earnings and 11 times trailing
sales. Ciena is valued at $7.5 billion, or 62 times earnings
and 15 times sales. The lofty valuations don't scare
Diecidue, who figures the combined company is worth 80
per share, or 35 times the earnings he expects in 1999.
Doug MacKay, an assistant portfolio manager at Oak
Associates, a Tellabs shareholder that is purchasing
Ciena these days, hopes to learn in the conference call
just when the two companies will close their merger.
Regulators have to approve the deal; in early June, Tellabs
said it hoped to finish in 75 to 90 days. Also, he intends
to take the temperature of the spending by phone carriers.
Tuesday evening, Ascend (ASND:Nasdaq) said it expects
strong carrier business in the rest of 1998; MacKay wants
to confirm that Tellabs sees the same trend for its
products.
Portfolio manager Bill Grierson with Tellabs shareholder
Kopp Investment Advisors also expects the company to
extend its series of upside surprises. The company has
topped estimates at least seven quarters in a row,
according to the Baseline data service.
Investors might have to wait longer for clues about the
progress of the Tellabs-Ciena combination. They like the
technological fit, but also want to learn about the
companies' plans to develop new products jointly.
Tellabs is snapping up Ciena partly to ensure its flagship
product in the U.S., the Titan 5500, isn't pushed to the
margin as network technology evolves. The Titan is a
digital cross-connect device that sends electronic signals
down different paths. The rise of fiber-optic network
equipment -- devices which transmit signals in photons
(light) rather than electrons -- has prompted Tellabs to
stock its arsenal. Acquiring Ciena is a big step in that
direction.
"One of the only remaining knocks for Tellabs was: Where
do they go after Titan?" Grierson says. "And I think this
answers the question."
Ciena builds products that phone carriers use to increase
network bandwidth by pushing 16, 40 or more light
messages through one optical fiber. However, its products
cannot handle multiple paths; so far, that can only be
done electronically.
The next step is to build an optical cross-connect device
that can send light messages down different paths without
converting them back to electrons. This is the product of
the future. While Tellabs and Ciena haven't announced
any such product, they are widely expected to cook one
up in a year or two. Competitors such as the startup
Tellium are trying to beat them to the punch.
Tellabs also disclosed plans in February to acquire
Coherent Communications (CCSC:Nasdaq) for stock
now worth $871 million. Coherent bolsters Tellabs'
technology lineup with products that remove echoes from
signals on both wireless and wire networks. Tellabs still is
waiting for approval from the Department of Justice on
the deal.
See Also
TOP STORIES
Ciena Soars
at Close on
Takeover
Rumors
6/2/98 5 PM
TOP STORIES
Will Cisco
Enter the
Acquisition
Derby?
6/22/98 10 AM
TOP STORIES
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