It looks like some wireless suppliers are doing well. If this holds true, companies like SILI are likely right behind. Some food for thought.
Troy
aol.thetelecommanalyst.com
Supplies surprise 2002-02-27
A trio of companies that supply wireless providers suddenly pop up with surprisingly good numbers
by Ben Mattlin, equity research columnist
A screen of telcos with long-term growth forecasts of 20 percent or better and stock prices that have plunged more than 10 percent in the past four weeks reveals three companies with an average analyst rating of 1.5 (squarely between "strong buy" and "buy"), and they’re all suppliers to wireless companies.
What does this mean? First, that cellular suppliers may represent a promising long-term opportunity at current valuations. What’s more, smart investors should leave no stone unturned in their pursuit of good values; two of these three do most of their work internationally, which probably explains why they are little known or understood by U.S. investors.
For example, TESSCO Technologies (TESS) is a sort of one-stop shop for Finland’s Nokia (NOK), Sweden’s LM Ericsson (ERICY) and other providers of wireless voice, data, paging, and Internet services. It offers supply chain management, control systems, product-solution delivery services, and marketing and sales assistance to link manufacturers with end-users, distributing more than 25,000 wireless products from nearly 400 manufacturers to some 23,500 customers. Infrastructure equipment and services made up roughly half of last year’s $260 million in sales, with accessories from cell-phone batteries to analytical maintenance tools accounting for the rest.
Companies mentioned in this article
LM Ericsson (ERICY)
Nokia (NOK)
TESSCO Technologies (TESS)
UTStarcom (UTSI)
Wavecom (WVCM)
In the final quarter of last year, the third quarter of TESSCO’s fiscal 2002, the company posted a 5 percent sequential increase in revenue to $65 million and a 50 percent sequential jump in earnings per share (EPS) to 30 cents. The number of buyers was down sequentially but the average purchase per buyer was up, management explained. Analysts were pleasantly surprised, seeing a financially strong company that’s well positioned to leverage its solid business relationships.
In fact, a February 23 Multex Investment Review finds the consensus may forecast a decline of 24.5 percent in profits for 2002, to 85 cents per share, but in 2003 most analysts expect a 45.9 percent rebound to $1.24 per share. In all, the mean long-term forecast is for 25 percent growth and the average analyst rating is squarely 1.5.
Reports for further inquiry
TESS: Solid FY Q3 Results, Maintain FY 2002 Estimates, Outlook
Investment Review — UTStarcom, Inc.
Investment Review — Wavecom S.A.
Yet the stock has fallen 18.27 percent over the past four weeks. Recently trading at $14.80, the shares are 28.82 percent undervalued, according to a ValuEngine assessment. Some bulls peg it with a target price of $25, for 38 percent upside potential.
Another provider of communications equipment for operators of wireless and wireline networks is neck-and-neck for analyst endorsements: UTStarcom (UTSI) of Alameda, California, has an average analyst rating of 1.57, a mean long-term growth expectation of 39.25 percent, and a stock price that’s dropped 28.62 percent in the last four weeks.
UTStarcom’s niche is supplying telecom networks in rapidly growing markets. The overwhelming majority of its $627 million in sales last year (a 70 percent year-over-year increase!) emanated from the People’s Republic of China.
Net income last year doubled to $57 million. That came from selling integrated network access systems, optical transmission equipment, and subscriber terminal technology based on international standards so that its telco-provider clients can offer expandable voice, data, and Internet services that easily fit with existing networks.
Perhaps more importantly, UTStarcom had $407 million in cash and short-term investments on its balance sheet at the end of last year, a 75 percent improvement from the year before. It is operating-cash-flow positive.
So why is the stock, at a recent $21.50, off 39 percent from its 52-week high of $35.66, which was just in January 2002? Fears of regulatory pressure in China mixed with the news that a majority shareholder intends to sell 10 million shares, representing 9 percent of the company’s total equity value, caused what many observers say is an overreaction—deregulation in China and gradual government acceptance have reduced the regulatory risks, and the planned equity sale has little to do with UTStarcom.
Indeed, a number of bulls cite the present discounted price as a plum opportunity to buy into this telecom leader, which stands to benefit from network upgrades because of its ability to integrate old and new systems, and from economies of scale from its success in China to offer competitive prices as it expands into other countries.
Multex Investment Review maintains that the street expects EPS growth of a whopping 81.3 percent to 95 cents this year and another 32.6 percent next year to $1.26. Price targets come in around $40, which is 86 percent higher than where it’s been lately.
Finally, France’s Wavecom (WVCM), traded on the Nasdaq Market, develops digital wireless standard modules (WISMOs) that enable mobile communications. Its WISMO technology is used in cellular phones, PDAs, automobile navigation systems, and so on.
Its stock is down 15.67 percent in the past four weeks, yet analysts have high hopes; their mean long-term forecast is for 45 percent growth, and their average rating is 1.5.
In part, this optimism is due to the company’s February 19 announcement that revenue soared 392 percent last year (to $283 million) and 241 percent in the fourth quarter alone, compared with the corresponding period the year before. Wavecom attributed these robust results to —get this— strong sales in China!
Moreover, gross margins in the quarter were up 71.9 percent year-over-year and 7 percent sequentially, reflecting lower component costs and making the company profitable. Last year, it had net losses. The Wall Street consensus expects a staggering 103 percent growth in EPS this year to $1.08, rising another 12 percent in 2003 to $1.21.
The Nasdaq-traded shares reached their 52-week high in January, at $41.88. Recently, they were trading at about $29. Fans suggest the stock could more than double in the next 12 months. |
