EVEREN SECURITIES FORCAST AND EVALUATION:
Analyst Christin Armacost, 7/15/98
FORCAST:
We are significantly increasing our revenue and earnings estimates to $1.90 billion and $1.60. This represents a 36% and 33% revenue and earnings growth rate and is the highest of the companies in our networking universe. We are also increasing our year 2000 estimates to $2.35 billion and $1.95 per share, representing 24% and 22% year-over-year increases, respectively. The majority of the revenue increase is based on faster-than-expected core switching growth which we project to become the majority of total revenue in the second half of 1999. Remote access revenue should improve in the third quarter due to a seasonably strong buying pattern from the larger carriers, but will lag overall revenue growth for the year, accounting for 38% of the total. We have also moderated our gross margin reductions based on a larger contribution of the higher margin core switching, increasing our EPS projections. Our new gross margin assumptions are now 63.4% for 1999 versus our previous 63.1%. Finally, the company's tax rate will decline by 100 basis points in fiscal 1999, accounting for approximately %0.03 of the earnings increase.
VALUATION
Based on 1999 estimates, the current relative multiple to the S&P 500 index for Ascend's peer group is 1.24, Ascend is currently trading at a 38% premium. Our 60% relative premium assumptions for Ascend is consistent with our view that Ascend Communications will post the highest revenue growth of the companies we follow in 1999. We believe Ascend's focus in the carrier space, avoiding the enterprise market, is a superior model for enhanced revenue opportunities,preserving above-average margins, and creating barriers to entry. We reiterate our 1-1.
Int.term rating: 1 - outperformer target price $62
Long term rating: 1 - outperformer Target price $66 |
