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Technology Stocks : Gilat satellite networks (GILTF) -- Ignore unavailable to you. Want to Upgrade?

To: james r czech who wrote (141)	11/15/1997 8:51:00 PM
From: jay silberman	Read Replies (1) \| Respond to of 350

UPDATE FROM LEHMAN BROS: Headline: Telecom Equipment: Focus Names In Small Cap Telecom Equipment Author: Tim Luke 1(212)526-4993 Company: Country: COM CUS Industry: TELECM Today's Date : 11/14/97 * We believe recent market volatility may be creating some compelling opportunities to acquire the shares of some of the smaller cap telecommunications equipment companies under our coverage. * We would highlight companies with strong near term visibility where revenue and earnings may exceed consensus expectations for FY97 and FY98. We are recommending NICE Systems & Comverse Technology as core companies in this category. * We also consider solid current business trends may enable ECI Telecom & Gilat Satellite Networks to deliver some upside to our projections despite investor focus on their emerging market exposure. * With particular weakness being experienced by Israel related technology & telecom companies, we would underline that all Israel based companies highlighted export 90-95% of sales & benefit from any incremental depreciation of the Shekel Vs US dollar. ------------------------------------------------------------------------------ NICE Systems (NICEY, 1, 38 1/8): Expect Strong 4Q97 And Robust Trends For 1998 Following an impressive 3Q97 which beat street expectations for revenues and earnings, we believe NICE Systems is on track for a robust 4Q97 with the company currently experiencing strong sales momentum across its product lines. We maintain further upside may be achievable in 1998 beyond our current estimates of $105 million in revenue and $1.73 in earnings. With the company growing at rates of over 50% YoY, we consider current multiple of 22x FY98 earnings of $1.73 appears compelling. NICE has limited Asian exposure with approximately 5% of sales coming from this region with the US caller market providing the principle growth engine. We continue to believe that following the recent conclusion of a distribution agreement with call center giant Lucent, NICE Systems may be able to attract additional distribution partners in international markets over the next several months. We are reiterating our view that NICE Systems remains an exciting investment vehicle within the dynamic voice recording and CTI (Computer Telephony Integration) call center marketplace and may represent a core small cap telecom equipment holding. Our 1 Buy rating and our 12 month price target range of $60-65 are based on the shares achieving a multiple of 25x our initial 1999 estimate of $2.26. Comverse Technology (CMVT,1,$36 5/8):Estimates May Rise When Merger Closes With backlog at record levels of $82 million or more than one quarter and visibility looking into 1998 remaining strong, we believe recent weakness in Comverse's shares may be overdone. We expect Comverse to comfortably meet and potentially exceed our estimates for 4Q97. In fact, we maintain that street estimates may increase for FY98 and FY99 when Comverse formally closes its pending merger with Boston Technology in around Mid-December this year. We believe Comverse's acquisition of rival Boston Technology (BSN, NR, $38 1/8) significantly strengthens the company's strategic positioning as the largest independent provider of enhanced services (such as voicemail) to telephone service providers. We consider integration with Boston is proceeding on track and is likely to create a powerful force in this fast expanding global market. We expect Boston to report solid 3Q97 earnings in line with consensus of $0.24 on November 18th. We maintain that recent weakness may partially reflect investor concerns regarding the combined company's exposure to Asian and Latin American markets. While we acknowledge that the two companies do have a significant presence in these regions and while we will continue to closely monitor Comverse and Boston's momentum in this region, we note that in the most recent 3Q97 results Asian sales represented about 14% of overall revenues split betweenapproximately 12 countries. We believe total sales to both Latin American and ASEAN countries were less than 5% of sales in 1H97 for Comverse. With respect to Boston Technology, where 60% of sales went to international markets 1996, we would underline that around 42% of sales went to Japan where strong demand from wireline and wireless service providers appears likely to continue. Other Asian region sales including sales to China, where demand indications remain robust, accounted for around 10% of CY96 revenues. While we will continue to monitor Boston's exposure to Brazil which has accounted for around 10% of sales in 1H97, we do expect Boston to see improving momentum in Mexico. Lastly, we note somewhat slower growth reported in 3Q97 from Comverse's Information Systems division which is involved in recording for government agencies such as the CIA and FBI, reflected delays in new wiretapping legislation. We believe the growth from the IS division is likely to be revitalized looking forward, as the long-delayed US government guidelines to telcos on wire-tapping network upgrades are finalized. We also expect the commercial recording business targeting the fast growing call center market to become an increasingly significant percentage of IS sales. We are encouraged that backlog for Information Systems increased to record levels in 3Q97 from $42.6 to $47.3 million and note that the entire governmental recording division will account for less than 5% of the new combined company's sales. We believe Comverse Technology's core Network System's business is likely to continue to benefit from expanding demand from wireline and wireless networks around the world as service provider seek to add revenue generating enhanced services such as voicemail and information services. Meanwhile, the Information Systems division is well placed to exploit the transition from analog to digital recording and monitoring systems by both government agencies and corporations. Our price target range of $50 is based on our view that investors are likely to focus on CMVT's earnings growth in excess of 35% allowing the shares to achieve a multiple of approximately 25x our revised 1998 estimate of $1.95. ECI Telecom (ECILF, 1, 27 1/8) Following 3Q97 earnings which beat expectations, we continue to expect solid growth trends from the key DCME, SDH and Telematics units. We believe DCME may be positioned to see a further sequential increase in sales in 4Q97 with more modest growth likely to continue in 1998. We expect the SDH unit to record growth of over 30% in 1998 to around $145 million. While we have modest expectations for Telematics, we do expect to see continued sequential increases as this turnaround gains momentum. Improvements from this previously loss making unit division would have an highly beneficial impact on overall profitability. In the Acccess area, we expect new products and a growing contribution from the Telegate cable/telephony investment to boost growth rates. While we will continue to monitor ECI's progress in restoring the Access division to sequential growth as well as its exposure to Asian markets (19% of 3Q97sales) we expect revenues to expand approximately 19-20% in 1998 to around $810-815 million. We will also monitor backlog levels which we expect to increase in the seasonally stronger 4Q97 after moving slightly lower in 4Q97 to $181 million from $214 million in 3Q97. We consider,however, that the shares are attractive at just 13x fowrad earnings. In our opinion, although the shares may be subject to fluctuations reflecting the timing of large individual orders, investors are likely over the next 12 months to focus on ECI's potential to deliver revenue and earnings growth of approximately 20% over next several years. Following higher than expected earnings in 3Q97, we are raising our FY98 estimates to $2.05 from $2.00 partially reflecting the improved gross margin outlook. Our price target of $38-40 and our 1-Buy rating are based on ECI achieving a multiple of approximately 18x our fiscal 1998 EPS estimate of $2.05. Gilat Satellite Networks (GILTF, 1, 29 1/8) After strong 3Q97 earnings which revealed record backlog levels, with just 5% f backlog in Asia, we believe Gilat is likely to continue to benefit from strong growth in its core market of data oriented VSAT equipment as thecompany extends in market share as a price/performance leader. Additionally, we consider that as a technology leader Gilat is well placed to exploit the development of new VSAT applications notably in the areas of Internet access and rural telephony. Based on Gilat's strong competitive position with increasing visibility with a rising backlog, we believe the Company should continue to enjoy revenue growths of approximately 25-30% over the next several years. Our positive 1 Buy rating and twelve month our price target of $45 reflect our view that over the next twelve months, investors are likely to focus on Gilat's ability to deliver earnings growth of 25-30%, allowing the shares to trade at a multiple of approximately 22x-23x our 1998 estimate of $1.90. Disclosure Legend: A-Lehman Brothers Inc. managed or co-managed within the past three years a public offering of securities for this company. B-An employee of Lehman Brothers Inc. is a director of this company. C-Lehman Brothers Inc. makes a market in the securities of this company. G-The Lehman Brothers analyst who covers this company also has position in its securities.

To: james r czech who wrote (141)	11/15/1997 9:03:00 PM
From: jay silberman	Respond to of 350

MORE FROM LEHMAN BROS: Headline: Gilat Satellite :Reports Solid 3Q97 In Line: Backlog & Visibility Improve Author: Tim Luke 1(212)526-4993 Rating: 1 Company: GILTF Country: SEO CUS CIS Industry: TELECM Ticker : GILTF Rank(Prev): 1-Buy Rank(Curr): 1-Buy Price : $28 1/8 52wk Range: $42-24 Price Target: $45 Today's Date : 11/12/97 Fiscal Year : DEC ------------------------------------------------------------------------------ EPS 1996 1997 1998 1999 QTR. Actual Prev. Curr. Prev. Curr. Prev. Curr. 1st: 0.24J 0.28A 0.28A - -E - -E - -E - -E 2nd: 0.26A 0.34A 0.34A - -E - -E - -E - -E 3rd: 0.33A 0.39E 0.39A - -E - -E - -E - -E 4th: 0.43A 0.50E 0.50E - -E - -E - -E - -E ------------------------------------------------------------------------------ Year:$ 1.22A $ 1.51E $ 1.51E $ 1.90E $ 1.90E $ - -E $ - -E Street Est.: $ 1.50E $ 1.51E $ 1.88E $ 1.89E $ - -E $ - -E ------------------------------------------------------------------------------ Price (As of 11/11): $31 1/8 Revenue (1997): 104.6 Mil. Return On Equity (97): 16.4 % Proj. 5yr EPS Grth: 30.0 % Shares Outstanding: 11.2 Mil. Dividend Yield: N/A Mkt Capitalization: 349.81 Mil. P/E 1997; 1998 : 20.6 X; 16.4 X Current Book Value: $8.64 /sh Convertible: YES Debt-to-Capital: 43.6 % Disclosure(s): C ------------------------------------------------------------------------------ * This morning, Gilat Satellite Networks delivered strong 3Q97 earnings of $0.39 vs. $0.34 in 3Q96 (restated for Skydata acquisition) in line with our consensus estimate. * Revenues in 3Q97 increased 40% YoY and 8% QoQ to reach $27.4 million ahead of our estimate of $26.9 million. Strength across all major VSAT product offerings. Book to Bill substantially greater than 1. * Gross margins improved to 44.3% up QoQ Vs 42.9% in 3Q97 & 44.0% in 3Q96 benefiting from improved engineering efficiencies and product mix. Operating expenses in line, Net R&D 7.8% of sales Vs 7.9% in 3Q97 SG&A at 20.4% Vs 21.3% in 3Q97. No currency impact. * Gilat closed 3Q97 with cash & equiv. of $48.6 million, a slight decrease from $50.1 million in the prior quarter. Receivables days in average move lower to 143, Inventory levels increase slightly from 119 to 126 days in average. * Reiterate 1 Buy Rating. Gilat remains well positioned in expanding VSAT market, expect Revenue & EPS growth of approx. 30% in FY98 & FY99. Believe concerns over winding down of GE alliance overdone. Price target $45 or 22x 1998 estimate of $1.90. ------------------------------------------------------------------------------ This morning, Gilat Satellite Networks reported 3Q97 earnings of $0.39 vs. $0.34 in 3Q96 (restated for Skydata acquisition) in line with our consensus estimate. Following the release of earnings, management held a conference call with investors, we believe highlights from the quarter include the following: Strong Revenue Growth and Visibility Continues During 3Q97 Gilat grew revenues 40% year over year and 8% sequentially to $27.4 million above our estimate of $26.9 million. Gilat enjoyed strength across all major product lines driven by the core SkyStar Advantage. Though the company does not disclose backlog figures on a quarterly basis, Gilat did confirm that book to bill was substantially greater than 1. Our computations indicate that based on new orders of over $35 million in 3Q97 and sales of $27.4 million, backlog levels (which include letters of intent) may be in a range of $40 to $45 million, boosting visibility for the balance of 1997 andinto 1998. While the company does not break down revenues by geographic regions, we note that only 5% of the record backlog levels of approximately $40 million was for Asia. During the quarter, Gilat announced that the Ethiopian Telecommunications Corporation , the nation's PTT, agreed to purchase 470 FaraWay and DialAway VSATs worth approximately $15 million. Gilat was chosen out of nine competitors due to its price/performance advantage to provide over 450 towns and villages with satellite telecommunications. Gilat indicated that further opportunities may exist soon after the basic infrastructure is organized which will supplement basic telephony services with distance learning and potentially satellite television. We view Gilat's selection from a field of 9 vendors as another firm endorsement of the company's technology leadership. Gross Margins Beat Expectations, Expenses In Line Gross margins improved in 3Q97 to 44.3%, an increase from 42.9% in the prior quarter and 44.0% in 3Q96 as the company continued to benefit from engineering efficiencies and lower component costs. Looking forward, we are believe the company may be able to deliver some upside over our estimated gross margin range of 41-43% as the new products increase as a percentage of sales. Gilat reported net R&D expenses of $2.1 million or 7.8% of sales a decrease from 7.9% in the prior quarter. Going forward, we believe the company will sustain Net R&D levels in the range of 7% to 8% of sales. SG&A expenses moved lower from 21.3% of sales in 2Q97 to 20.4% in 3Q97. Gilat's other income line was impacted by interest expense relating to the recent convertible bond offering with other income moving from income of $296,000 in 2Q97 to an expense of $34,000 in 3Q97. We expect interest expense of around $1.1 million in FY98 Focus On GE Relationship May Be Overdone We believe that weakness in Gilat's share price today may result from investor focus on Gilat reseller relationship with GE. As highlighted in last quarters conference call, management confirmed that it is unlikely the current reseller arrangement with GE will be renewed when the contract expires at the end of 1998. As we have anticipated, management confirmed GE is moving ahead with the development of its own VSAT platform based on the technology of its recent acquisition of Tridom from AT&T. We note that while GE has represented 30% of Gilat's sales in the first 9 months of 1997, Gilat's positioning in the VSAT industry may actually improve if the company is not tied to an exclusive reseller deal in the US market. In fact, we believe that a number of rival operators may be eager to partner with Gilat and expect further announcements may emerge over the next several months. We would also highlight that we consider that Gilat's position as a technology leader and its long association with GE's customers is likely to ensure that GE continues to distribute considerable volumes of Gilat's product line in 1998 and 1999. We note that as Gilat's moves to a direct sales model using its own platform the company's margins may be positively impacted. Balance Sheet Remains Intact Gilat's balance sheet remains healthy with 3Q97 with cash and cash equivalents at $48.6 million, a slight decrease from $50.1 million in the prior quarter. Receivables increased from $39.1 million in 2Q97 to $46.6 million in 3Q97 but decreased from 151 days in average to 143 days. Inventories increased from $19.5 million in 2Q97 to $22.7 million in 3Q97 and increased from 119 days in average to 126 days. The company retains long term debt of $75 million from the convertible offering earlier in the year. Stock Opinion: We believe Gilat is likely to continue to benefit from strong growth in its core market of data oriented VSAT equipment as the company extends in market share as a price/performance leader. Additionally, we consider that as a technology leader Gilat is well placed to exploit the development of new VSAT applications notably in the areas of Internet access and rural telephony. Based on Gilat's strong competitive position with increasing visibility with a rising backlog, we believe the Company should continue to enjoy revenue growths of approximately 25-30% over the next several years. Our positive 1 Buy rating and twelve month our price target of $45 reflect our view that overthe next twelve months, investors are likely to focus on Gilat's ability to deliver earnings growth of 25-30%, allowing the shares to trade at a multiple of approximately 22x-23x our 1998 estimate of $1.90. BUSINESS DESCRIPTION: Gilat designs, develops, manufactures, markets and supports Very Small Aperture Terminal (VSAT) satellite earth stations, hub equipment, and related software products. ------------------------------------------------------------------------------ Disclosure Legend: A-Lehman Brothers Inc. managed or co-managed within the past three years a public offering of securities for this company. B-An employee of Lehman Brothers Inc. is a director of this company. C-Lehman Brothers Inc. makes a market in the securities of this company. G-The Lehman Brothers analyst who covers this company also has position in its securities.