>Where is everybody?
>Can anyone explain why CMVT hasn't bounced back with the rest of the
>techs the last two days? I haven't seen any news. The NASDAQ is up
>almost 200 the last 2 days and CMVT, which just had another in
>string of stellar quarters, continues to go down. It nows trades for
>14x 1999 earnings. Whats goin' on here!!
bill.
excellent questions. i'm scratching my head too. is everyone else at home with clammy hands and a tummy ache?
bueller?
-chris.
excerpts from tim luke's latest write-up follow.
Comverse Tech: Another Excellent Quarter, Strong Outlook, Ests Raised, Buy
Author: Tim Luke, Mark Sue 1(212)526-4993
Rating: 1
Rank(Old): 1-Buy
Rank(New): 1-Buy
Price: $44 3/8
52wk Range: $58-30
Price Target (Old): $75
Price Target (New): $75
Today's Date : 08/26/98
Disclosure(s): C, A
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* Post-close yesterday, global voicemail and enhanced services leader Comverse Tech reported another quarter of excellent results with 2Q98 earnings of $0.55 (up a dynamic 48% YoY) comfortably beating our consensus level estimate of $0.52.
* 2Q98 revenues grew impressive 26% YoY to reach $167.4 M, coming in slightly above our high end estimate of $167.2 M. As previewed, extremely robust Europe & strong US comfortably offset softness in Asia which moves from 18% sales in 1Q98 to 14% in 2Q98.
* Backlog increases to record $149 mill vs $141 mill in 1Q98 providing strong outlook for 2H98, management already highlighting very strong visibility for 3Q98. Gross margins improve to 59.5% in 2Q98, beating our est of 59.0% & 59.0% in 1Q98.
* Op expenses in line. Slight change in tax rate to new 9.7% level vs our est of 10% rounded up EPS to $0.55 from $0.54. Cash boosted to $541 mill after recent convert offering. Receivables trend slightly higher to 92 days in avg, inventories trimmed.
* With CMVT once again beating consensus & giving upbeat guidance on 2H98, we are increasing our FY98 ests from $2.18 to $2.22 & believe our high end FY99 est of $2.62 is conservative. Reiterate compelling valuation & buy rating. Target $75 or 28x FY99.
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Stock Opinion, Estimates Raised, Compelling Valuation, Reiterate Buy
Following another quarter of impressive results above consensus expectations (Comverse's 17th in a row), we are once again revising our estimates upwards. We are moving our 3Q98 estimate upwards form $0.56 to $0.57. This change partially reflects an increase in our gross margin assumptions. We are currently leaving our high end FY99 estimate of $2.62 unchanged at this stage. We are, however, becoming more and more confident that this level is likely to prove conservative given increasing visibility on strong revenue growth, improving gross margins and substantial opportunities for operating expenses and the tax rate to trend lower as a percentage of sales.
We believe Comverse's core Network Systems is likely to continue to benefit from expanding demand from wireline and wireless networks around the world as service providers seek to add revenue generating enhanced services such as voicemail and information services. The successful rollout of new advanced features and services may provide additional upside to our revenues and earnings estimates. We note that Sprint PCS is seeing substantial increases in traffic rates from the new one touch call return service it is trialing. This feature which is likely to be rolled out to Comverse's entire wireless
customer base uses caller id to allow subscribers to simply touch one button in order to redial someone who has left a message. Meanwhile, Comverse Information Systems division is well placed to exploit the transition from analog to digital recording and monitoring systems by both government agencies and corporations.
We contend that Comverse's valuation remains compelling at just 17x our conservative FY99 estimates. Our price target of $75 is based on our view that over the next several months investors are likely to focus on CMVT's earnings growth in excess of 25-30% allowing the shares to achieve a multiple of approximately 28x our 1999 estimate of $2.62.
Disclosure Legend: A-Lehman Brothers Inc. managed or co-managed within the past three years a public offering of securities for this company. B-An employee of Lehman Brothers Inc. is a director of this company. C-Lehman Brothers Inc. makes a market in the securities of this company. G-The Lehman Brothers analyst who covers this company also has position in its securities.
lehman.com |
