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

To: Michael F. Donadio who wrote (19759)	8/1/2000 12:45:59 PM
From: Rich Wolf	Respond to of 21342

Westell mentioned in the Telecomm Analyst: thetelecommanalyst.com 11. Panning for Gold Issue #18 Westell Technologies Small-Company Play in Big-Company DSL By Marc H. Gerstein Market Guide, Director of Investment Products In Field of Dreams, Kevin Costner's character believed "if you build it, they will come" and built a baseball field in the middle of nowhere. Since this was a Hollywood project, when he built it, they did, indeed, come. But in real life, it's "if you build it, they will yawn" is far more accurate. That's what happened with WESTELL TECHNOLOGIES (WSTL), which launched its DSL (digital subscriber line) Internet efforts in the early 1990s and did its IPO in 1995, expecting that DSL would catch on in 1996. It's bad enough when anticipated revenues don't materialize, but worse when revenue disappointment is accompanied by big-time spending. Not surprisingly, WESTELL, a 1996 high-flier, landed with a thud and then plodded along in obscurity. Fast forward to 2000. DSL is really happening. You see advertisements all over - from little companies you never heard of to big telecoms that everyone knows. Early adopters complained about rotten service. But the providers have been working hard to make it right and customers continue to sign on. Hollywood might reject as corny a script in which WESTELL dusts itself off and finally realizes its dream of DSL prosperity. Fortunately for the company, it can and is scripting its own feel-good plot line. While the pitch might not excite Madison Avenue, it's being warmly welcomed on Wall Street, so much as to land the company on a Market Guide stock screen designed to find companies that are "under-owned" by institutions but are showing signs of increasing attention. The present day story really is quite basic. Revenue is soaring as the company's major customers pursue aggressive DSL rollouts. In its first fiscal 2001 quarter, which ended June 30, 2000, total revenue jumped to $107.9 million from $24.2 million in 1999. Revenue from customer premises equipment jumped to $61.9 million in the most recent quarter from $1.2 million a year earlier. Meanwhile, WESTELL has clamped down on spending, so margins are soaring. Officially, the company reported a loss of $0.08 a share. But when you back out goodwill amortization and an inventory revaluation related to an acquisition, you get earnings of $0.06 a share, which was far better than the $0.02 a share consensus estimate for operating results. Of course, there are lots of outfits making and selling DSL equipment and no one can be sure all of them (and all their suppliers) will prosper. But how many people want to bet against the likes of BRITISH TELECOMMUNICATION (BTY), SBC COMMUNICATIONS (SBC) and VERIZON COMMUNICATIONS (VZ) - all WESTELL customers. Those companies are so large, it may not pay to invest in them as broadband plays. But investors who see them as DSL winners might appreciate WESTELL as an indirect way to participate in big-company DSL. The stock looks expensive measured with respect to current year earnings. But as analysts adjust to WESTELL's strong June quarter, we should see the PEG (Price/Earnings-to-Growth) ratio approach 1.00 when we measure against estimated results for the fiscal year ending March 2002. And there might be an extra treat for shareholders, should WESTELL decide to spin off its teleconferencing unit.