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

To: Home-Run who wrote (194)	12/31/2004 7:23:21 PM
From: Home-Run	Respond to of 1575

Just read parts of the report. Nice 16-page piece. Here the summary: Initiating Coverage with Buy Rating We believe Sonus Networks is one of the best positioned suppliers of next generation switching equipment and the company's pure-play VoIP exposure deserves a premium valuation. Carrier RFP activity grew dramatically in 2004 and we believe Sonus will land (and hopefully announce) several significant deals in 2005 in both the domestic market and overseas. We also believe the Voice-over-Broadband market will be a significant growth driver for VoIP equipment suppliers and the U.S. market for Voice-over-Broadband is only 3% penetrated. We are initiating coverage of Sonus Networks with a Buy rating and $9 price target. Our price targets equates to a 30x multiple on our 2006 operating income assumption plus cash. We believe a 30x multiple could prove to be conservative given our expectations for 30%+ revenue and 50%+ operating income growth through 2006. Best Pure-Play on VoIP - We believe Sonus represents one of the best ways to play the VoIP market and the company is currently the only high quality pure-play in the space. RFP Activity Accelerating - Carrier RFP activity accelerated in 2004 and we believe Sonus has the potential to land several significant deals in 2005. Additional near-term opportunities also exist with the recently announced Motorola, Marconi and China Putian relationships. Voice-over-Broadband (VoB) a Significant Opportunity - The U.S. VoB penetration is estimated to be 2.9% exiting 2004 (only 1 million subs) and is expected to grow to 36.1% penetration (22 million subs) by 2009. We believe this access market represents a significant opportunity for SONS. Valuation - Sonus currently trades at a P/E ratio of 32.5x based on our 2005 EPS estimate of $0.17, but the P/E ratio drops to 19.7x using our 2006 EPS estimate of $0.28. We believe this is a compelling valuation given our expectations of 50%+ bottom line growth through 2006. Investment Conclusion - We are initiating coverage of SONS with a Buy rating and $9 price target. Our price target represents a 30x multiple applied to our 2006 operating income assumption plus cash. We believe a 30x multiple could prove to be conservative given our expectations for 30%+ revenue and 50%+ operating income growth through 2006.