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Strategies & Market Trends : Market Gems:Stocks w/Strong Earnings and High Tech. Rank -- Ignore unavailable to you. Want to Upgrade?

To: kendall harmon who wrote (52207)	7/22/1999 11:40:00 PM
From: Jenna	Read Replies (1) \| Respond to of 120523

Today's watch list and earnings play: CACS act 0.20 exp 0.13 with revenues of 179.5% I fell for thicompany only about 2 short months ago. it's been my top 10 buys together with the group HLIT, ETEK, GALT, ENTU, DISH, GMST and CREE.. DISH has since gone into correction but CACS chart yesterday looked marvelous. I hope it does tomorrow what HLIT did today. CACS had 4 point intraday range today. Reprinted from today's watch list: ****Carrier Access: Well Connected to Growth by Chris Bulkey 6/14/99 When you consider buying a high multiple technology stock in this nervous market environment, you need to look for a pullback in the share price. That is exactly the opportunity given to investors by the recent volatility in the technology sector. Case in point: Carrier Access (NASDAQ:CACS - news) . After reaching a 52-week high of $80.37 on March 31, its shares have pulled back more than 50%, to a recent $37.88 as investors ponder the near-term direction of monetary policy. Carrier Access provides multi-service digital access equipment (MDA) to competitive local exchange carriers (CLECs), wireless carriers and Internet service providers. Essentially, the company's products connect a carrier's end user to the appropriate digital access lines. The products are commonly referred to as "last mile" solutions, as they bridge the final gap between the end user and the carrier. The company's products enhance the delivery of both voice and data traffic. Since its inception, Carrier Access has focused on serving the CLEC equipment market. Due to market share gains and rapid access line growth, the CLEC segment is one of the most attractive in the network infrastructure industry. A recent report from US Bancorp Piper Jaffray indicates that CLEC access lines, although having doubled in 1998 to over 2.7 million lines, currently serve less than 5% of the roughly 50 million business lines in the United States. This leaves ample opportunity for further penetration, which should benefit equipment suppliers like Carrier Access. The report goes on to project that capital spending by the 12 largest CLECs will increase more than 25% in 1999 to over $5 billion. While their expenditures have been focused on adding enhanced voice services, they are increasingly adding Internet and data access to their service offerings, which bodes well for Carrier Access. Since its IPO back in July 1998, the company has positioned itself very well within a high growth industry. For the first quarter of 1999, ended March 31, revenue rose 201% to $21.7 million from the prior year, and increased 19% sequentially. Earnings came in at $0.19 per share versus $0.05 in the first quarter of fiscal 1998, excluding a preferred stock dividend from the prior year, which was terminated by the conversion into common shares at the time of the IPO. Analysts are certainly underestimating the company's earnings power, as first quarter earnings exceeded the First Call consensus by 111% and by an average of 91% over the past three-quarters. Despite a gradual decline in average selling prices (ASPs), which was in line with previous management guidance to protect market share, margins improved sharply due to continued manufacturing improvements. Gross margins came in at 59%, a sharp improvement over the 47.9% reported in the prior year, as well as the 55.7% result from the fourth quarter. Effective expense leverage sent operating margin soaring to 32.6% from 14% in the prior year's period. No surprise, consensus estimates have been inching up over the past four weeks. The current First Call consensus for the second quarter is $0.13 per share, which should be achievable in light of the company's propensity for upside surprises and absence of swelling inventories or receivables in the first quarter. The company's cash flow is also accelerating. Last year Carrier Access generated $9.6 million in operating cash flow, which was nearly 40% greater than net income of $6.9 million. In the first quarter operations generated another $5 million in cash, another positive indicator. The balance sheet is extremely solvent with $58.5 million in cash and securities ($2.32 per share) and no debt. Both receivables and inventories have been reduced sharply as a percentage of sales indicating that favorable working capital trends remain in tact. A trailing twelve-month Return on equity of 25.8% (according to Market Guide) helps to justify a strong outlook for sustainable growth. So, Carrier Access on track to meet the 1999 estimate of $0.63 per share. In 2000, earnings are projected to increase 35% to $0.85 per share, which leaves the shares valued at 42 times forward estimates. The shares certainly aren't cheap, but we believe that the recent pullback in price, along with strong earnings momentum help justify a premium multiple. Now, keep in mind that when the shares hit their 52-week high of $80.37, the forward multiple was about 100 times. High growth companies in hot industries do not come cheap, but the recent pullback leaves Carrier Access shares more than 50% cheaper than they were just three months ago