[ASND bullish analysis]
As a long time lurker, I've decided it's time to join the show. As an inveterate info junkie, I will try to post articles/research related to ASND/networkers. Kudos to Maverick, Gary Korn, Style Points, Sector Investor, Glenn, Dennis, Tim, Pat and everyone who make up this excellent threat. I welcome comments on my analysis below.
I bought 2500 shares of ASND at $27 in Fall 1997. I'm in my mid-30s and don't intend to sell until the just-starting worldwide data networking/WAN/ATM/bandwidth build-out shows any sign of slowing. If there is no takeover, my crystal ball has ASND trading at $60/share (conservative estimate) on 12/31/88 based on excellent 2H98 earnings and higher 1999 estimates. ASND is perfectly positioned for the next 3-5 years. Its business prospects look excellent after the growing/merger pains in 1997.
1. ASND stock price. I'm convinced that ASND's price will continue to steadily increase during 1998 with only a minor dip during any possible market correction. I'm not sure why anyone would sell until at least after Fall 1998. ASND has guided analysts to $.25/share in 4/98 (I personally think it will be $.27). More importantly, the CBX 500 "killer switch" (I love that phrase!) is in beta now (Williams is one satisfied customer) and starts shipping in 4/98. I look forward to holding ASND for the 7/98 quarter (CBX 500 added revenues), 10/98 quarter (great comparisons with the $.20 in 10/97) and what promises to be a strong 1/99 quarter.
The added kickers are the 1/98-on European telecom deregulation (which Mory described as an "immense" opportunity during the late 2/98 BARS conference). European telcos have been testing ASND equipment and there should be some nice announcements. There also could be a possible takeover at any time (especially after 10/1/88 when LU can do a pooling of interests transaction). Moreover, additional earnings (not currently factored into analyst estimates) from Japan, China, Taiwan and the rest of Asia if the Asian economies can recover during 1998. To have competitive and efficient economies, Asian countries will have to build their data networks. I'm personally convinced that the US 3.9% GDP growth with 1.5% inflation has been achieved in large part due to the incredibly efficiency of a networked economy -- finally the base of installed PCs can actually improve productivity.
In addition, if you look out 6-12 months and especially into 199, ASND seems undervalued especially compared to CSCO. I like the target estimate by Alger on CNBC in 2/98 of $1.35 EPS and $47.5/share in 1998. After the 9/97 disappointment, the analysts seem to be gun shy and won't really raise their estimates until ASND proves itself, which of course gives them time to get their clients into ASND. Of course, ASND's share price will probably rise to about $50/share before there is mass capitulation of the analysts (Merrill Lynch here we come). Given its existing market share, ASND is well positioned for future growth in the US, Europe, Japan, Taiwan and China. As Ashby has stated, ASND is installing infrastructure for a $3-5B revenue/year company compared to its current $1.2B revenues.
On a side note, I get nervous when I see ASND gains at over 50% year-to-date in Gary Korn's very helpful daily stock price results for networkers. I always want to add a disclaimer stating that ASND's fair value as of 12/31/97 was probably $35 (not $25) but for tax-based selling, margin calls and mutual fund managers who were desperately dumping ASND to avoid having to explain why they held ASND in their portfolio on the way down. The way I see it, based on fair value, ASND's price has only increased 7% to $37.5 in 1-2/98, which leaves lots of room on the upside.
2. Data networks growth. I keep referring back to Trends 1-2 in the 1/98 Red Herring article ("10 Top Trends in 1998") which shows marginal growth/year for voice networks but exponential growth for worldwide data networks and the number of WWW users in the next 10-15 years. I've read projections that the internet telephony market will grow to $63B revenues in 2002. The telecoms will have to spend hundreds of billions to build data networks to replace their voice networks. And, the exponential growth in electronic commerce (noticed the share price of amazon.com and yahoo lately) will go through ASND data networks.
3. Lack of ASND acquisitions. Have you noticed that ASND hasn't acquired any start-ups in a long time? Is this more evidence that ASND is positioning itself to be sold? It has $600M in cash. Yes, the stock price decline probably prevented a few acquisitions, but even CS has made acquisitions while its stock price imploded. And, Ashby's history with takeovers just raises more questions.
4. ASND potential purchasers. LU, NT and others must move
strongly into data networking to check the growing threat from CSCO, COMS and ASND. ASND's continuing high market
share in its target markets, 64% margins, talented engineers (tough to hire these days), and projected growth rates are very attractive. ASND would provide a nice strategic
fit with LU. But, I wonder why LU bought Livingston? LU also
seems to be emulating CSCO's strategy of buying lots of startups
with bleeding edge tech. NT, IBM, ERICY, CPQ and INTC have
also been mentioned as having a realistic interest in ASND.
5. Share repurchase program. If ASND isn't positioning itself
to be acquired (which I'm convinced is their intention), why
don't they spend some of their healthy cash position to announce
a modest share repurchase program? It would help
employee/shareholder morale and keep the shorts honest. The
recent CYMI buyback announcement in late 1/98 seems to have done
wonders.
6. CSCO competition. As Maverick has shown in detail, ASND is
holding its own, the Cascade CBX500 "killer switch" is coming on strong, and CSCO's competitive products still are one generation behind. CSCO has its big chance in 1997 to knock out ASND during its merger difficulties with Cascade and 56K modem fiasco. But, ASND survived and is prospering in market spaces where CSCO has had and continues to have problems gaining market share. I think the market share data will be very favorable to ASND in 1998 after a weak 1997 for the above reasons. Have you noticed that Chambers seems almost desperate to partner with LU/NT? Or is Chambers trying to warn LU/NT to prevent a
war?
7. Investor sentiment. Wall Street and smaller investors are
returning to ASND after a scary 1997 and margin/tax-based selling
in Fall 1997. The Capital Group 6% purchases from $25-33/share
provide a nice base. It never hurts to have Cramer on your side
with a "humongous long position." The influential Red Herring magazine has kept
ASND in its model portfolio of 10-12 stocks since at least 1996.
In addition, the innovative Technology Value Fund run by
Landis/Kam had built and kept a 495,000 share position throughout 1997 and to date. The smart money has established their position in ASND and the mo-mo, voodoo TA boys are just starting to come back (yes, we just crossed the 200MA).
8. RAC growth. The new 56K standard, ASND software update in 2/98 and next generation TNT will greatly help. I've read projections that the RA market will grow from $2.7B to $12B revenues in 2000. ADSL/cable modems are still a long time off for the masses. ASND also benefits from ADSL and has worked with MSFT, INTC and CPQ in this area. In the year 2000, the projected market shares are 65% 56K, 7% cable, 5% ISDN and 3% ADSL. In addition, I hope ASND can participate in the huge growth of network services ($20B revenues projection in year 2004).
Let me know what you think. djane
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FYI ASND is my biggest current position and I don't intend to trade it for a long time. My other tech positions are NTAP, RMBS, CIEN, AMAT, QCOM, GRSTF and LOR. Made most of my trading money last year in SGI (believe it or not), INTC, EGRP and RMBS. Lost some money in COMS, NSCP and CSCO (believe it or not). I find it difficult to go short -- any good book suggestions? I'm always interested in any good tech IPO ideas. |
