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Technology Stocks : E*TRADE IPO Alert - Y2K and Beyond (EGRP) -- Ignore unavailable to you. Want to Upgrade?

To: Jim B who wrote (7060)	8/14/2000 12:16:12 PM
From: SgtPepper	Respond to of 10270

Friday August 11, 6:48 pm Eastern Time Morningstar.com The IPO Week Ahead By George E. Nichols The upcoming week features more quantity but less quality. The pair of initial public offerings featured here last week experienced opening-day performances that were poles apart. McData's (Nasdaq: MCDT - news) shares tripled, while Equinx's (Nasdaq: EQIX - news) budged up only slightly from their offering price. Last week's IPO schedule was the busiest in months, if not years. Despite the flood, the overall quality of offerings hasn't been up to snuff, as witnessed in weak debuts from AOL Latin America (Nasdaq: AOLA - news) and Screaming Media (Nasdaq: SCRM - news). It looks like more of the same this week. Hoping to rush out before the seasonal IPO slowdown starts in a couple of weeks are 14 names, according to IPO.com. This newest class of hopefuls might not contain any barnburners, but a couple of them are among the rare breed that generates profits: WJ Communications and Peco II. The strongest of the two is WJ Communications (Nasdaq: WJCI - news), which sells communication products for fiber-optics, broadband-cable, and wireless-communication networks. Those markets are growing like gangbusters, which has boosted the fortunes of WJ. Its customers include Cisco Systems, Lucent Technologies, and Nortel Networks. In a market populated by hot startups with big-name venture-capital backing, WJ sticks out as an oddity. Formerly a public company known as Watkins-Johnson, it was bought out by private investor group Fox Paine Capital. In its reincarnation, WJ hopes that the second time will be a charm for the stock. More than four decades old, WJ recently had a makeover through the divestiture of its less sexy semiconductor and defense-electronics businesses. In the midst of this facelift, WJ lost money in the first quarter of this year because of a $35.5 million charge associated with the buyout of the company. And sales during two of the four most recent quarters suffered sequential declines. Despite these restructuring scars, the company's financials are fairly solid and show great improvement. For the most recent quarter, ended in June, the company earned $839,000 while growing sales 62% sequentially to $27.6 million. Based on the midpoint of the current offering range, the company would be valued at $817 million, or about seven times annualized sales. Though not in bargain territory, that valuation isn't bad as far as IPOs go. In an otherwise bland week, WJ is among the few strong offerings on tap. Another company generates even more profits than WJ, but its opening day might not be quite as successful. Look beyond its goofy name, and you'll find a strong history behind Peco II. Peco II (Nasdaq: PIII - news) sells communication power products, which includes components that transport and convert electrical signals. That may sound like boring stuff, but Peco II has snared customers such as Lucent, Nextel, and Verizon Communications' Bell Atlantic. When it comes to financial health, the company is one of the strongest to come to market in recent weeks. It has been profitable for every year since 1995. And in three of the last four years, annual sales growth ranged from 59% to 64%. For the first half of this year, the company earned $5.2 million on $74.2 million in sales. A key threat facing the company is the loss of a valuable customer. Bell Atlantic, which accounted for 10.6% of sales for the first half of 2000, plans to take its systems-integration business in-house beginning in the third quarter. That's going to take a big chunk out of Peco II's top line. Based on the trailing 12 months, the offering price implies a valuation of about 2.3 times sales and 40 times earnings, which is cheaper than the valuation for the faster growing WJ. Despite the expected loss of a key customer, the company enjoys a strong business. The investing public, which may not be enamored of such an unexciting business, will be offered one fourth of total shares outstanding. This enormous supply could ensure that any opening-day gains are kept in check. George E. Nichols can be reached at george_nichols@morningstar.com. Visit www.morningstar.com daily for in-depth analysis of stocks, funds, and sectors in the news.