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

To: P314159d who wrote (19881)	8/7/2000 2:59:55 PM
From: Sir Auric Goldfinger	Read Replies (1) \| Respond to of 21342

Insider Selling and Provisioning Issues Hit Shares; Reiterating BUY Rating The share price of Westell Technologies stock has fallen nearly 50% during the past week, closing last week at $17.06. In addition to the market's overall recent weakness, we believe there are several issues worrying investors, all of which should prove to be temporary problems. Several insiders, most notably CEO Marc Zionts and President J.W. Nelson, have sold large blocks of stock in recent days. Zionts sold 225,000 shares, or 22% of his personal holdings, and Nelson sold 100,000 shares, or 14% of his holdings. Instead of selling large blocks such as these, we think managements of public companies serve themselves and other shareholders best by establishing "orderly sale" programs that place a predetermined number of shares on the market each quarter. That said, we don't regard the insider sales as indicative of a bail-out by senior management, as the sell-off in the shares would seem to suggest. We have witnessed management bailouts, and they are usually far more sweeping and lucrative than the Westell situation. Zionts, in particular, saw Westell through a difficult period during which the Company's stock fell below $4 a share and rallied to $40. We don't think $4 million to $5 million worth of stock sales is an outlandish reward. Beyond the insider sales, one of our competitors issued a warning of a potential build-up in inventories of Asymmetric Digital Subscriber Line (ADSL) equipment at SBC Communications, a major Westell customer, possibly coinciding with line provisioning problems there. We have always regarded RBOC provisioning to be the potential Achilles Heel of the DSL story, as it applies to both businesses and consumers. Indeed, recent reports from Competitive Local Exchange Carriers (CLECs), which depend on RBOCs for their last-mile connections, would seem to support the doubters. We think Rolla Huff, CEO of Mpower Communications, said it best on a conference call last week when he termed the RBOCs as partly malicious and partly incompetent when it comes to their inability to fulfill their DSL deployment commitments. The Bells are wrestling several alligators, including poorly trained personnel, a lack of provisioning systems and degraded copper plant, not to mention their tendency to hype technology fads whenever they want new privileges from regulators, such as entry into long-distance markets. Beyond those chronic issues, however, we know of no immediate problems at SBC. In fact, we think this telco is accelerating the pace of its ADSL rollout to pre-empt competitors approaching from a number of angles. Furthermore, we think our projections for Westell's ADSL revenues-$70 million in the Company's second fiscal quarter to end in September, up 14% from first-quarter levels-allow for potential provisioning problems at RBOCs. We believe any kinks in the system will prove temporary and will leave our estimates unaffected. With DSL still in its infancy and with SBC's Project Pronto being a major driver of deployments, we don't expect any slowdown in this channel to be long-lived. Finally, labor negotiations at Verizon Communications, a major customer, could also impact Westell by slowing or halting ADSL deployments, but we believe this possibility is minimal. A prolonged strike would be needed before DSL deployments slowed to a level that would cause Verizon to consider canceling modem orders. Overall, we consider Westell to be a fundamentally sound company and are comfortable with our current estimates. We reiterate our BUY rating, with a one-year price target of $40, and believe the recent weakness in the stock price represents a good buying opportunity. WESTELL TECHNOLOGIES, INC. FYMar. EPS* Prior Est. WSTL - $17.06 Rating: BUY 00A ($0.23) NC Price Target (12 mo.): $40 01E $0.32 NC Charles W. Pluckhahn, CFA (617) 239-7514 02E $1.29 NC *Exclusive of amortization expense and untaxed Other public companies mentioned in this report: SBC Communications Inc. (SBC - $43.94) Verizon Communications (VZ - $46.94) Mpower Communications (MPWR - $46.00; BUY)