Here it is Janice.........ÿ
ÿ ÿ ÿ ÿ ÿ ÿ ÿ ÿ ÿ ÿ ÿ ÿ ÿ ÿ ÿToday's Pitch
RULES | STANDINGS | ARCHIVES <Picture: Aufhauser
- WealthWeb: Click here!><Picture: Ceres - $18
Trades! Click here!>
Pitch #133: Dueling Fools: US Robotics (4B)
by MF Parlay (MF Parlay) and MF Edible (MF Edible)
As the leading modem maker in the world, with 35% of the market share, US Robotics (NASDAQ:USRX) has become synonymous with the Internet growth story. With a portfolio of other related telecommunication products, the company reported just under $2 billion in sales for their fiscal 1996.
MF Parlay winds up with the Bullish Pitch: US Robotics has proven itself to be a strapping growth company. The past three years have seen the company expand both revenues and stock price ten-fold. The company has done this by proceeding to dominate just about every market it enters. The company has leading market shares in the desktop and PCMCIA modems, Internet call concentrators, personal digital assistants (PDAs), and conference phones. The company looks to leverage their size in the next year with the rollout of the highly anticipated x2 technology that allows modems to communicate at 56 Kbps over standard analog lines.
While the fact that the company has a major stake in the Internet infrastructure business should almost be enough to justify the stock's price alone, the company has managed to maintain its growth while remaining profitable. One look at the historical results makes any true growth stock investor flush with envy. The company has said it is comfortable with revenue estimates of $3 billion for 1997, about a 50% increase over fiscal 1996 results. The company is also aiming to have $5 billion in revenues by the year 2000. With the stock trading at a forward price-to-earnings ratio of 21 (and 16 against anticipated 1998 results), this Fool thinks the stock has the potential to continue its successful ways.
MF Edible takes the mound for the Bears: I love modems, everything from the screeching sounds they make when they connect to the very notion how we are turning telephone and cable wire into the threads of social existence. While I envision the future as wired nirvana, I find it hard to picture US Robotics with a market cap well north of $6 billion. The company seems to agree, since insiders -- including the President -- sold in droves in November. Yes, just as they were saying how they were comfortable with analyst estimates of $3.20-$3.30 a share in 1997 they were also unloading shares on to people willing to pay more than 20 times those projected earnings.
It all boils down to the technology, and US Robotics was not the first to introduce the 56.6 Kbps modem. That honor belonged to Rockwell, who in teaming up with Ascend Communications, places them, and not US Robotics, at the forefront. Even that does not mean much, since modems have come a long way since the day when every budding sysop had to own an external Courier modem to keep their Bulletin Board System running. With internal nameless modems standard in many computer systems now it is well on its way to becoming a commodity segment, as has been the case with RAM chips. Yes, modems that can download twice as fast should mean another year or two of modem upgrades but where from there? And how will this behemoth grow sales and earnings when the market moves to cable modems with such superior speed that the perpetual upgrade will cease for awhile? I don't know and maybe the company does not know either and that is why they are cashing out now while x2 might simply mean XS in the share price.
Here's the Pitch, for a HOMER . . .
At market close on MONDAY, JANUARY 20th (the last day of the current Today's Pitch Season), where will US Robotics (Nasdaq: USRX, $70 1/4) close?
a) above 75, modem to the stars??
b) from 71 to 75, Zoom!?
c) between 67 and 71, in training?
d) from 63 to 67, x1?
e) below 63, signing off?
Disclaimers:
a) the positions taken by the Dueling Fools may or may not reflect their own opinions of the stock.
b) the authors may or may not hold long or short positions.
c) as always, discussion of the stock in a Pitch does not constitute a recommendation of any kind by the Motley Fool, for or against. |
