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Technology Stocks : Comverse Technology -- Ignore unavailable to you. Want to Upgrade?

To: Nichols who wrote (1087)	3/21/2000 3:30:00 PM
From: Mark Ambrose	Read Replies (1) \| Respond to of 1331

Nichols, Here's a link & a copy of the article you mentioned: biz.yahoo.com ------------------------------------------------------------ MotleyFool.com - Daily Double Comverse Calls In a Double March 20, 2000 Comverse Technology Inc. Ticker: (Nasdaq: CMVT - news) Phone: 516-677-7200 Website: www.comverse.com Price (3/17/00): $208 1/4 How Did It Double? While perhaps not the scorching performance we've seen from numerous wireless, biotech, and B2B companies of late, the shares of Comverse Technology have spent most of the last year slowly heading in the same direction -- up. Trading near $50 twelve months ago, the shares recently pierced the $200 mark. There really hasn't been any single piece of news to account for the year-long rise. Rather, the company has simply delivered fairly strong sales and profit growth, typified by the following results: (in millions except EPS) Q4 1999 Q4 1998 Sales $240.6 $190.1 Gross Profit $150.5 $114.9 Operating Income $48.9 $33.1 Net Income $50.5 $32.4 EPS $0.60 $0.44 Gross Margin 62.6% 60.5% Operating Margin 20.3% 17.4% Net Margin 21.0% 17.0% (Comverse's fiscal fourth quarter ended January 31.) The growth has been so smooth that the company has reported both increased revenue and earnings for every one of the past eight quarters following its major merger with its peer Boston Technology. Beyond a fundamental improvement in the profit picture, Comverse stirred up some excitement on Wall Street with the news that it plans on spinning off to the public one of its business groups. Whatever combination of facts one uses to account for the rise, longtime investors who dialed into Comverse have been rewarded and have seen the value of their shares more than do uble over the last year. Business Description Based on Long Island, Comverse Technology is the top dog in supplying equipment for multimedia telecommunications applications. Comverse's products allow phone companies and other firms to offer enhanced services, such as voice mail and automated call answering. The company also makes digital recording products for use in applications such as 911 call centers. The company's major clients read like a Who's Who of the telecommunications world, including AT&T (NYSE: T - news) and Deutsche Telekom (NYSE: DT - news). In 1998 Comverse acquired a company that may be familiar to old-time Fools, Boston Technology. The Boston purchase essentially doubled the company's size and thrust Comverse to the front of its market. Keeping its corporate lawyers and investment bankers busy, Comverse has announced its intention to bring public sometime later this year its Ulticom subsidiary, which is a major provider of telecommunications network software. In addition, Comverse is in the process of acquiring Loronix (Nasdaq: LORX - news), a maker of digital video recording systems. Comverse came public in 1986 and is today a member of both the Nasdaq 100 and S&P 500 indices. The company will be splitting its stock 2-for-1 on April 3. Financial Facts 12-month sales: $872.2 million 12-month income: $172.1 million* 12-month EPS: $2.17* Profit Margin: 19.7% Market Cap: $15,899.3 million (*Excludes one-time charges) Balance Sheet (1/31/00) Cash and equivalents: $777.7 million Total Assets: $1,352.4 million Working Capital: $848.8 million Shareholders' Equity: $711.3 million Ratios Price-to-earnings: 95.9 Price-to-sales: 18.2 How Could You Have Found This Double? One way to have possibly been alerted to Comverse was to screen for companies with rising profit margins. Comverse has consistently shown up on the rising margins screen we offer here at the Fool, and that particular stock screen is a useful way to find companies with improving fundamentals. When a firm can combine revenue growth with rising margins, it has an explosive recipe for profits. The fact that Comverse has enjoyed rising margins and improved financial efficiency is not terribly surprising. After all, a merged company is its most inefficient right after its merger takes place. The synergies and cost savings associated with combining firms take a while to work their way through, and these latent benefits are undoubtedly part of the reason for Comverse's attractive income statements today. Probably the simplest way to have discovered Comverse was to look for top dogs in vibrantly growing industries. When Comverse merged with Boston Technology, it was fairly clear that the company dominated several niches in the telecommunications hardware business, which is still very much a growth industry today. Where to From Here? One thing about Comverse worth keeping an eye on is its Ulticom spin-off. While it probably won't be the blockbuster IPO of a subsidiary like what we recently saw from 3Com (Nasdaq: COMS - news) and Palm (Nasdaq: PALM - news), it is nevertheless a good way for the company to realize value from this one subsidiary. After the IPO, Comverse will still own roughly 82% of Ulticom's stock. It would also be surprising if the company's ongoing Loronix merger were its last. The company has proven itself to be interested in business acquisitions that make sense. Looking at the fundamental positioning of the company, there's really nothing out there to indicate that the good times will end any time soon. Comverse is expected to earn $2.64 per share this fiscal year and $3.17 in fiscal 2001, putting its earnings growth solidly in the low 20% range. At this writing, the company is trading near 65x its most forward earnings estimates, meaning it is not exactly inexpensive. But then again, companies with solid track records and bright prospects rarely come cheap. Comverse may just be worth keeping on the radar, especially if the market panics and puts the shares on sale.