Patroller, I am Still Extremely Cautious.
To be blunt, and there's no point pussyfooting around,
Jabil would have to fall 30% from it's present price of
around $23 for me to be interested in taking/re-entering a
long position. Yes, after 5 years of holding varying amounts
of Jabil stock, I sold the last of it this year and almost
singlehandly put the US government into a surplus.
At $23, Jabil sells at about 30X trailing earnings and
about 3X book value...so what I'm targeting as an entry
level target is when PE falls to 20X and stock sells for
about 2X times book. While PEG is presently about one, I
think growth of 30% factored in for next year (according to
Yahoo profile) is just plain too high given the poor economic
conditions that exist for the near future. I note Lehman
Bros projects earnings for 2002 at 0.72, which is below
2001 earnings of 0.76. So instead of factoring in (and
paying a premium) for growth, investor's should and will
eventually factor in a margin of safety that growth will
come in under projections. We are still going the wrong way
overall, with layoffs and capex cuts all around. Included
is an article on the latest Worldcom cuts. Chopping one
billion from next year capex is yet another devastating blow.
Regards, Peter
Good luck to all.
August 30, 2001
--------------------------------------------------------------------------------
Street Worries WorldCom Capex Cuts Could Set New Pattern
By JOHNATHAN BURNS and CHRISTINE NUZUM
Of DOW JONES NEWSWIRES
NEW YORK -- It could only get worse from here.
After long-distance phone and data communications service
provider WorldCom Inc. (WCOM) said Wednesday it intends to
spend $1 billion less on capital projects next year than
most had originally expected, the final nail may have been
pounded into the telecommunications equipment makers'
collective coffin.
A billion dollars is, after all, one hell of a hammer.
"We've seen a lot of revisions (to capital spending plans)
throughout this year," said Jim Jungjohann, telecommunications
equipment analyst with CIBC World Markets. "I can't see the
market improving anytime soon on the telecom equipment side."
WorldCom made its announcement in a filing Wednesday, a few
hours before Corning Inc. (GLW), the world's largest maker
of optical fiber, lowered its 2001 estimates for overall
fiber shipment growth. The company also said it would cut
another 1,000 jobs in the fiber business.
The two events had the good grace of a semi on the telecom
equipment sector Thursday, leaving skid marks on shares of
Corning - which dropped by as much as 19% at one time -
while others, like JDS Uniphase and ONI Systems ONIS) were
left for the buzzards.
WorldCom said it intends to spend $6 billion on capital
projects for both its data-centric and high-growth WorldCom
Group and consumer long-distance MCI Group (MCIT).
The company said it has realized "efficiencies" and has
neared completion of some of its data and Web-hosting
centers as well as its international network. Most also
suspect the company is seeing some bargain-basement pricing
on equipment to boot.
"From our discussion with the company, we understand that
significant (capital spending) savings have arisen because
major construction projects are approaching completion and
equipment prices have dropped significantly," Dan Reingold,
telecommunications analyst with Credit Suisse First Boston
Corp., said in a Thursday note. He also thinks WorldCom is
looking to improve its balance sheet.
Not that such a move would be unwarranted.
Out Of Cash, Investor Favor
For at least the past four years, telecommunications
carriers tossed around money like a newly minted trailer-
park lottery millionaire as competition from startup phone
companies spurred wild spending sprees in an effort to
capture new or retain old customers.
But things changed when the startups began running out of
cash as investors lost patience.
Now, companies like Lucent Technologies expect the overall
telecommunications market will decline 5% to 10% in 2002,
though the company anticipates its customers' spending will
be flat.
Others are a little more pessimistic.
George Notter, telecommunications equipment analyst with
Deutsche Banc Alex. Brown, predicts that capital spending
by North American carriers will be down more than 20% in
2002 against 2001. That is after a decline of between 18%
to 20% in 2001.
The largest carriers in the U.S. have cut their projected
capital spending plans across the board, with few
exceptions. That has led to their suppliers issuing little
or no financial projections for next year. Equipment
companies like Ciena Corp. (CIEN), ADC Telecommunications
(ADCT), Tellabs (TLAB) and Nortel Networks (NT) have had to
tamp down expectations - some of them several times so far
this year. For most of the year, Ciena was a notable
exception, but recently bowed to the pressure brought about
by lower spending plans globally on long-haul telecommunications
networks.
Qwest Communications International(Q) has shaved $1 billion
off its 2002 budget this year. In the company's July second-
quarter conference call, Chief Executive Joseph Nacchio
said capital spending will be $7.5 billion, down from $8
billion projected in June and from an April forecast of
$8.5 billion. Qwest also cut this year's capital spending
forecast twice to the current estimate of between $8.8
billion and $9 billion. In June, the forecast was $9.2
billion and in April, it was $9.5 billion.
A Qwest spokesman said there are currently no plans for
further cuts in the budget, adding that Nacchio reiterated
projections at a conference in Boston earlier this month.
Verizon Communications (VZ) has not issued a capital
spending plan for next year, and is still assessing the
economy and this year's results, a spokesman said. He added
that the company has no plans for further reductions in its
capital spending for this year, which was cut by $1 billion
to $17.5 billion in April.
SBC Communications Inc. (SBC) has also said little about
spending in 2002. The company has said that capital
spending will decrease next year after its broadband
initiative is complete, but hasn't issued specific spending
forecasts. A spokesman declined to comment further. SBC cut
its capital spending plan to $12 billion from $12.5 billion
for this year after releasing first-quarter results.
Likewise, AT&T (T) and Sprint Corp.'s FON Group (FON) have
said little about 2002 spending plans.
In May, Sprint trimmed its 2001 capital spending plans by
$300 million to $5.9 billion. AT&T said in April that its
capital spending for fiscal 2001 will be between $8.5
billion and $9 billion, a company spokeswoman said. That is
down from about $9.8 billion in fiscal year 2000 on a
comparable basis.
Lucent officials and other executives at telecommunications
equipment companies believe spending will grow in 2003.
Lucent's own projections incorporate "conservative
assumptions," according to official language from a recent
meeting with financial analysts.
The next 18 months, however, appear to be difficult terrain.
Notter said his own analysis indicates spending by European
carriers will decline 4% in 2001, with another 5% to 6%
decline in 2002.
Wednesday's WorldCom announcement "reinforces our bias
toward further (capital spending) declines," he said. "We
continue to recommend that investors stay underweight (in)
the telecom equipment group. Visibility into a (capital
spending) rebound remains well over the horizon." |
