NN from briefing:
NEWBRIDGE NETWORKS (NN) 36 13/16 CLOSED. This is an interesting story. After the close Tuesday, Newbridge Networks (NN) warned that fourth fiscal quarter (Apr) revenue and profits would be well below expectations. NN said that profits would only be $0.12 to $.14 per share, below the expected $0.22, and that revenue would be about $460 million. Revenue in the third quarter was $451 million, so this represents only a small sequential gain for a company that is supposed to be sharply on the rebound. What makes this story interesting is that the problem at NN is not a slowdown in orders, but a failure to be able to deliver on those orders. In the press release, NN essentially says this is a management problem. NN CEO Lutz says that there was "exceptionally strong customer demand" and that they have to "temper their enthusiasm" for the outlook with the "humility that comes for the experience of this pre-announcement." The market has certainly tempered its enthusiasm as the stock traded 10 points lower on Instinet. But for the bulls, there is the news that all product lines have a book-to-bill ratio of over 1.2, and there is a significant backlog of orders. Two-thirds of the sales occurred in the last month of the quarter, and the company simply couldn't' deliver on many of the orders. Management in effect agrees that they must get their act together and deliver better results in the face of strong orders. Yet, they don't deliver on telling the market how they will do this, and say that they will have details on changes they will make when they announce the quarterly results on XYZ. Because NN stock has risen sharply from a 52-week low of 15 7/6 in October, this is bad enough news to cause a sharp sell-off this morning. But it is also possible that some brokers will come out and defend the stock, in the belief that management will get its act together and turn the solid demand for the products into rising profits. Briefing.com isn't making any suggestions here, but sentiment could again change towards this stock. NN has become very pricey relative to current earnings, but if it takes a real beating, it could be worth watching for an eventual bounce. It will be worth watching, especially if NN makes a confident sounding announcement on June 1.
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