NBMO (Nationsbanc Montgomery) - REDUCING AFCI ESTIMATES FOR Q1:99; MAINTAIN BUY
We spoke with AFCI management on Tuesday (2/23) for an update on the quarter. Although the initial order flow at the beginning of the quarter was strong, anticipated orders from international accounts have not materialized at this point in the quarter. As a result, we have reduced our revenue and EPS estimates for Q1:99 to $65 million (from $73 million) and $0.03 (from $0.06).
-International orders are below projections. The reduction in revenue is a result of slower orders from Mexico, Venezuela and China. Management did not comment on the anticipated international order level for Q2 or 1999.
-Domestic sales remain on-track for the quarter. As mentioned in previous notes, we believe progress continues at AFCI's target RBOC account (SBC) and Winstar. The UMC-1000 has completed its evaluation in SBC's labs with positive reviews. While order levels from SBC could
increase now that product evaluation is completed, a formal write-up of the review, culminating in product qualification, is not expected before the end of March. Winstar revenue will be recognized in the quarter, but likely generate less than 10% of total sales (Winstar was a 33% customer in 4Q98). Given Winstar's aggressive plans to build a nationwide network, we believe it could be a 10% customer for AFCI in 1999.
- Reducing forecast for Q1:99, but maintaining out-quarter estimates. To be conservative we are modeling Q1:99 at the low end of management's current forecast ($65-70 million and $0.03-0.04). No change to out-quarters at this time.
- We continue to recommend AFCI to value-oriented investors with a long-term focus. The company offers strong product technology and may be an attractive acquisition candidate, particularly at its current depressed valuation. We continue to caution, however, that visibility
into near-term results is limited. We rate this stock BUY, with a $17 year-end price target. |
