I guess I'll keep bringing the value plays here to balance out some of the mo-mos:
CMNT (Computer Network Technology) Has been beaten down as of late from the $17's down to $10 for no apparant reason other than profit taking and general market conditions. Here is a write up I found on the company which gives a good summary:
Computer Network Technology
Analyst: Will Frankenhoff 2/8/99
Looking for a way to play the networking boom without needing
to pay 60 times earnings (Read: Cisco Systems
(NASDAQ:CSCO - news) ?
Try little known Computer Network Technology (Nasdaq:CMNT - news) , a small-cap
provider of networking products and services which sells at a mere 15 times consensus 2000
estimates, a 47% discount to its projected 30% growth rate.
Okay, we're not arguing that Computer Network Technology deserves a multiple anywhere close to
mighty Cisco's. But, we do believe that the company has a strong niche position in the networking
industry and deserves a closer examination, especially given the strength of its recent operating
results.
Computer Network provides networking products and services which permit high performance
connectivity between mainframes, storage devices, local areas networks (LANs) and the Internet.
These products are primarily sold into three markets: Channel Extension, Enterprise
Access/Integration (EAI) and Storage Area Networking (SAN).
While the market for Channel Extension products is expected to continue declining, from $207
million in 1993 to a mere $150 million in 2000, the growth of the SAN market is estimated to grow
from $500 million in 1997 to $1.2 billion in 2000, according to Strategic Research Corp. SAN
networks are used to connect storage devices, thus improving performance and flexibility on LANs
(because storage is moved off of the servers.)
And the EAI market, which enables servers to host web sites, is expected to grow by 40%-50%
per year.
The company counts over one-half the Fortune 500 as customers and is partners with a large variety
of OEMs such as IBM (NYSE:IBM - news) , Sun MicroSystems (Nasdaq:SUNW - news)
and EMC (NYSE:EMC - news) .
Revenue for the fourth quarter ended December 1998 increased 14% to a record $36 million,
driven by a 12% increase in product revenue and a 16.7% increase in service revenue. Earnings of
$0.11 per diluted share (before charges) beat estimates for the second consecutive quarter and
represented a 267% increase over last year's period.
Gross margins improved 340 basis points to 60.4% due to a greater mix of high-margin EAI Internet
products. Operatingmargins of 10.4% represented a 710 basis point gain driven by the
above-mentioned gross margin improvement as well as a decline in engineering and development
costs, which fell 400 basis points to 13.7% of sales.
So the stock, which has more than tripled to $10.94, remains a compelling buying opportunity.
Computer Network is trading at 21 times consensus 1999 estimates of $0.46 per share and 15
times consensus 2000 estimates of $0.73 per share. Given the migration to EAI and SAN platforms,
which are expected to drive annual growth in these areas at a 40%-50% rate over the next few
years, the company could trade at a richer multiple.
Bottom Line:
Given management's ability to drive margin improvement, we believe that shares of Computer
Network Technology could be trading in the $18 range, or 25 times FY 2000 estimates.
|
