Here's the BEST report:
MRVC: Downgrading To Attractive On Low Visibility
Bear Stearns & Co. Inc.
October 27, 1998
Bob Lam, CFA (212) 272-7670 10/27/98
blam@bear.com
Subject: Change in Recommendation
Industry: Data Networking
BEAR, STEARNS & CO. INC.
MRV Communications (MRVC - 9 1/16) - Attractive
Downgrading To Attractive On Low Visibility
_________________________________________________________________
***We are downgrading MRVC shares to Attractive from Buy on the
following reasons:
1. Visibility remains very low in future business conditions.
While we had expected that visibility would improve in Q4, we are
not seeing any clear signs of turnaround in business.
2. When the company pre-announced earnings shortfall on 8/27,
it indicated that its WDM and high-speed switching products would
be delayed for 3 months. Our recent discussions with customers
indicated that the delay could be longer than expected.
3. We were disappointed that the company's lack of presence in
the recent Interop trade show. Interop is the most important
networking show with participation form many major customers.
The lack of presence by MRV prevented the company from attracting
new customers.
4. We believe the networking hardware market is becoming
extremely challenging for smaller vendors. The enterprise space,
dominated by Cisco, Bay/Nortel, and 3Com is maturing. The
service provider space is now the focus but is very difficult to
break into given the entrenched positions of Cisco, Lucent,
Nortel, and Ascend. The recent disappointing results from
smaller players such as FORE have confirmed our belief.
Moreover, pricing environment in the enterprise space appears to
be very aggressive. We see continued pricing pressure on MRV's
switching product lines.
***We are rating the stock Attractive on the company's good
technologies, potential in optical networking, and its fairly
strong indirect distribution in Europe.
***We are maintaining our estimates pending the company Q3's
release on 10/29 after the market close. We are looking for EPS
of $0.12 on $57 million revenues.
_________________________________________________________________
MARKET CAPITALIZATION: $ 260 million
SHARE COUNT: 28.6 million shares
EARNINGS Q1 Q2 Q3 Q4
Mar Jun Sep Dec Year P/E
Current 1997 $0.19A $0.21A $0.23A $0.25A $0.88A 10.3x
Current 1998 $0.26A $0.31A $0.12E $0.15E $0.85E 10.7x
Current 1999 $0.90E 10.1x
_________________________________________________________________
Other Companies Mentioned:
Cisco Systems
Lucent Technologies
Nortel
3Com |
