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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (32802)	6/15/2001 2:36:29 AM
From: Johnny Canuck	Read Replies (1) \| Respond to of 68985

Trader's Edge: Stratos Lightwave (STLW) 14-Jun-01 09:15 ET This provider of optical subsystems and components for fiber-optic networks recently told investors to expect a return to 20% sales growth in fiscal year 2002. A fairly bold prediction for a company that simultaneously warned that next quarter's results would prove unachievable, and one that is clearly suffering from poor visibility. Regardless of when Stratos Lightwave (STLW 10.93) manages to resume revenue growth, history suggests that the intermediate term outlook for the stock is bleak. Trading Points Same old tune: Those who have been involved in the market during an economic downturn know painfully well that the business never comes back as quickly as companies and analysts predict. We anticipate the weakness in telecom sector capex spending persisting well into calendar 2002, making it extremely difficult for this supplier to distressed telecom equipment makers such as Nortel, Cisco, and Lucent to live up to the goals it has laid out for the investment community. Ask questions later: Experienced money knows this game. These investors will not wait on the company to lower guidance again before they start exiting the stock. Data points from the top of the food chain (telcos delaying projects, cutting budgets, and acknowledging aggressive pricing by suppliers) gives them sufficient information with which to extrapolate the very difficult intermediate-term outlook for STLW and others in the extremely competitive space. Short on valuation: The stock's aggressive valuation also argues for further consolidation.... STLW shares currently trade at 64.3x optimistic fiscal 2002 consensus EPS of $0.17. Big overhang: Stratos has another cloud hovering overhead that has nothing to do with the company's fundamentals. In April, Stratos' parent company Methode Electronics distributed its 54 million share stake in the company to shareholders. The transfer of stock to individual shareholders created a major equity overhang, one that could potentially trigger an avalanche of selling should the stock break the $7.44 price STLW traded at the time of the distribution. Chart laggard: Stratos shares struggled in the rally phase of the recent Nasdaq ramp. Further deterioration in the telecom sector outlook, coupled with crippled price momentum, suggests that STLW will continue to be an underperformer... Potential 6-9 month downside risk to the stock is in the $5 to $7 area.