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

To: Galirayo who wrote (19583)	7/20/2000 2:28:57 PM
From: Anthony Tsai	Read Replies (1) \| Respond to of 21342

Updated Baird report after conference call BAIRD/ BAIRD/ BAIRD/ BAIRD/ BAIRD/ BAIRD/ BAIRD/ Westell Technologies, Inc. July 20, 2000 WSTL: ADDITIONAL FQ1 2001 COMMENTARY, RAISING ESTIMATES, MAINTAIN SB 52 Week Fiscal ----- EPS ----- P/E Ratio Shares Price Range Year 2000 2001E 2002E 2001E 2002E Div Yield (Mils) 27 41-6 MAR New ($0.23)A $0.30 $0.80 90.0 33.8 0.00 0.0 59.2 Old $0.22 $0.67 Calendar $0.18E $0.60 Current Rating Rating: Strong Buy S&P 500: 1,481.96 Suitability: Higher Risk Price Target: $48 * Raising revenue and earnings estimates for remainder of fiscal 2001 and fiscal 2002. * Raising fiscal 01 revenue estimate to $501.3 million from $394.4 million, and fiscal 2002 to $671.5 million from $510.9 million * Raising fiscal 01 EPS estimate to $0.30 from $0.22, and fiscal 02 to $0.80 from $0.67. * DSL model sales continue to drive business and we also expect acceleration of Transport business as well. * Expect margin improvement due to outsourcing, additional component supply, improved operational efficiencies and new-product initiatives. * Westell added 7 to 10 new customers in the quarter, with the significant addition of GTE (Verizon), where Westell will be a primary vendor. * Three largest customers are SBC, Bell Atlantic and British Telecom (FTEL relationship), all 10% customers. * With the strength of CPE sales in the quarter, we believe Westell has gained significant market share in the desktop modem market. * We maintain our Strong Buy rating and $48 price target; we believe the stock can work higher off current levels. Summary * We are raising our revenue and earnings estimates for the remainder of fiscal 01 and fiscal 02. * We are increasing our fiscal 01 revenue estimate to $501.3 million from $394.4 million and increasing fiscal 02 to $671.5 million from $510.9 million. Revenue growth continues to be driven by Westell's CPE DSL modem business, but its other business units are seeing improved growth as well. We are increasing our fiscal 01 CPE revenue estimate to $273.9 million from $166.5 million, while increasing our fiscal 02 CPE revenue estimate to $369.7 million from $239.3 million. In addition, we are increasing our Transport revenue estimates significantly as well, raising our fiscal 01 estimate to $51.5 million from $30.2 million, and raising our fiscal 02 estimate to $74.0 million from $43.8 million. * We are raising our fiscal 01 EPS estimate to $0.30 from $0.22, while increasing fiscal 02 to $0.80 from $0.67. We believe this earnings improvement is justified for several reasons: * Higher sales volume will create additional operating leverage, expanding margins. * Westell is increasing its use of outsourcing with Omni and Solectron for CPE model production, creating a lower-cost business model and, therefore, improving margins. * As component supply continues to improve, we expect Westell to have choice of more than one supplier, therefore lowering component costs and potentially spurring higher component performance through improved component technology due to supplier competition. * Due to Westell's significant ramp in CPE revenue, the company has yet to close an existing facility related to the Teltrend acquisition. We believe closure of this facility will provide Westell with improved operating synergies and lower operating costs. * Westell added 7 to 10 new customers in the quarter, including the significant addition of GTE (now part of Verizon), where Westell will be a primary supplier. Westell's three-largest customers, all 10% customers, were SBC, Bell Atlantic (now Verizon) and British Telecom through Westell's relationship with Fijitsu Europe (FTEL). We expect continued customer demand for DSL service, and believe Westell is well-positioned with the largest U.S. carriers to benefit from the strong roll-out of DSL service. In addition, management indicated on this morning's conference call that they believe current DSL subscriber projections remain conservative. * In addition to Westell's current ADSL modem product offering, we expect the company to expand its modem product line over the next several quarters. Possible introductions could include a higher-speed, symmetric SHDSL product as well as a multiple-user ADSL modem product. Also, management indicated they believe the market for voice-over-DSL (VODSL) is attractive and would expect Westell to play in this market as well. However, management indicated they believe this market will take longer to develop than expected, and wouldn't expect a significant ramp to occur until the second half of calendar 2001. Currently, Westell has downloadable software applications to add value to customers' current ADSL service. We view this as a significant opportunity as it provides Westell with a revenue-generating opportunity as it can address its large installed base of customers. * We maintain our Strong Buy rating on Westell and our $48 price target. We believe the stock remains undervalued at current levels, especially when compared to its DSL peer group. In addition, we believe the addition of GTE as a customer is significant as we don't believe Westell had much incremental revenue from GTE in fiscal Q1. We believe the stock can work higher from these levels and believe the company's strong revenue and earnings growth is sustainable going forward. Estimate Changes The following table illustrates our revenue and earnings adjustments for the remainder of fiscal 01 as well as fiscal 02. Q2E 01 Q3E 01 Q4E 01 (millions) New Old Chg. New Old Chg. New Old Chg. Telco Access $30.2 $38.3 -21.1% $33.5 $37.4 -10.4% $35.0 $39.0 -10.3% Transport Sys $13.5 $6.8 98.5% $15.0 $7.8 92.3% $17.0 $9.6 77.1% CPE $67.0 $40.0 67.5% $70.0 $41.0 70.7% $75.0 $43.5 72.4% Svs - CPI $11.5 $11.5 0.0% $12.1 $12.1 0.0% $13.6 $13.6 0.0% Total Revenue $122.2 $96.6 26.5% $130.6 $98.3 32.9% $140.6 $105.7 33.0% EPS $0.07 $0.05 40.0% $0.08 $0.07 14.3% $0.10 $0.08 25.0% 2001E 2002E (millions) New Old Chg. New Old Chg. Telco Access $128.9 $150.0 -14.1% $162.0 $173.5 -6.6% Transport Sys $51.5 $30.2 70.5% $74.0 $43.8 68.9% CPE $273.9 $166.5 64.5% $369.7 $239.3 54.5% Svs - CPI $47.0 $47.7 -1.5% $65.8 $65.8 0.0% Total Revenue $501.3 $394.4 27.1% $671.5 $522.4 28.5% EPS $0.30 $0.22 36.4% $0.80 $0.67 19.4% ** Baird makes a market. Ted J. Moreau, CFA First Call Corporation, a Thomson Financial company. All rights reserved. 888.558.2500