Top Stories: At Ascend, Investors Want More Than a
Good Quarter
By Kevin Petrie
Staff Reporter
4/9/98 10:45 AM ET
Bulls think Ascend (ASND:Nasdaq) will clear the consensus earnings
estimate
of 25 cents a share when it reports first-quarter results Thursday after
the close.
But they want a little more.
Since the stock already has tacked on 66% this year, investors also are
trolling
for evidence that the spring and summer look sunny. Ascend execs have
been
taciturn since they disappointed Wall Street last year, but there might
be plenty
to boast about if rumors of big contract wins hold water.
Ascend's stock rose 2 3/8 to 40 11/16 on heavy volume Wednesday and was
up
another 7/16 at 41 1/8 on Thursday. Options activity also reflected
bullish trading
currents. Shares now trade at 34 times trailing profits, excluding big
charges tied
to the June 1997 merger with Cascade. Ascend, which makes remote access
devices for Internet service providers and large switches for phone
carriers, has a
market capitalization of $7.3 billion, putting it far behind industry
leader Cisco's
(CSCO:Nasdaq) $70.2 billion market value.
Investors tuning into the conference call Thursday after the close will
try to ferret
out confirmation of the rumored sales deals, though that may not come
this
week. The bubbling optimism comes courtesy of Ascend's Cascade division,
which builds large "frame relay" and "asynchronous transfer mode"
switches for
phone carriers and Internet service providers.
The talk is that both Williams (WMB:NYSE) and AT&T (T:NYSE) soon will
buy
plump loads of Ascend product. Both already do business with Ascend. In
January, Williams disclosed a $150 million contract for Ascend's ATM and
frame
relay products; for some time AT&T has deployed ATM gear from Ascend. On
Tuesday analyst Al Tobia at NationsBanc Montgomery Securities said in a
research note that Qwest (QWST:Nasdaq) and LCI International (LCI:NYSE),
which intend to merge later this year, have awarded some business to
Ascend.
Tobia, whose firm hasn't performed any recent underwriting for Ascend,
also
upgraded Ascend to buy from hold. A money manager who follows Ascend
says
Qwest is beta-testing GX550 ATM switches from Ascend and intends to
deploy
them on its network in the next two years. Officials at Ascend and AT&T
declined
to comment; Williams and Qwest representatives could not be reached.
Research director Mark Yu at the money management firm Norman L. Yu &
Co.
figures Ascend will meet the consensus of 25 cents per share and $305
million in
revenue. He says Ascend has finished digesting Cascade and shifting to
new
MAX TNT remote access products. Phone carriers are buying bushels of
Cascade's ATM products, according to Yu.
Yu's firm hopped on the stock when it waited below 30 per share earlier
this year.
Yu won't say what his firm is doing now, but does say, "We would
recommend
buying the stock on pullbacks."
If Ascend confirms suspicions that the June quarter is a shoo-in, fund
managers
awash in cash might push the stock to new levels.
"People will pay any amount of money if they believe there's no earnings
risk,"
says Roger McNamee, partner at Integral Capital Partners. The warnings
from
Motorola (MOT:NYSE), Bay Networks (BAY:NYSE) and others have made
profit security somewhat rare on Wall Street. McNamee wouldn't say
whether
he's currently invested in Ascend.
****another older article*****follows
Bull Run: Ascend's Recent Run May Have Some Strength Behind It
By Kevin Petrie
Staff Reporter
2/17/98 10:48 AM ET
Holding a grudge against Ascend (ASND:Nasdaq) for its collapse last year is becoming a costly miscalculation.
Since Dec. 29 Ascend's shares have soared about 50% to about 35 1/16,
outpacing the 12% average gains by networkers, according to the Baseline data service.
Ascend, which struggled with bugs in its products in 1997, is luring back investors who are betting that it can make good money while dwelling in giant Cisco's (CSCO:Nasdaq) shadow. A big reason is its
acquisition last June of Cascade, whose high-capacity data products are winning business with phone carriers.
"We got egg on our face" with Ascend last year, says Doug MacKay, assistant portfolio manager at shareholder Oak Associates, which originally owned Cascade. He's a bull now. Oak was already the largest
shareholder on Sept. 30, with about 6.1 million shares, according to
Technimetrics. His firm has purchased heavily since then, largely because of Cascade, reducing its average cost per share. MacKay says Oak is roughly breaking even on its Ascend investment right now.
Oak also has a big stake in Cisco, whose $63.7 billion market capitalization dwarfs Ascend's $6.4 billion market cap. But the firm
believes Ascend still can thrive with its "asynchronous transfer mode," or ATM, technology -- simply put, high-capacity data systems that ease bottlenecks on phone networks. MacKay points out that phone carriers typically prefer to buy from two vendors.
"We believe that Ascend has learned a valuable lesson in quality assurance from the acquired Cascade," says analyst William Rabin at
J.P. Morgan in a bullish Feb. 5 research note. Rabin says Ascend is shifting its focus to selling ATM and other gear to phone carriers. Previously the company made of its revenue selling "remote access" gear to Internet service providers. His firm has performed no
underwriting for Ascend or Cascade. In fact, the Cascade chunk of business generates 42% of total revenue now, and is expected to surpass Ascend's remote access business for ISPs shortly. Two
Cascade products, the CBX 500 and GX 550 switches, enable phone carriers to shovel large volumes of digital data across the core
of their networks with ATM. Industry experts say the products break new technological ground.
To be sure, Ascend also has bottom-fishers to thank for some of the bounce. "At least in our shop, it's been mostly valuation players" purchasing the stock, says one trader. "I have not seen any big
institutions coming in and buying a million shares."
Others see Ascend as a trading stock -- not a keeper. "Should I sell Cisco and buy Ascend?" says Chris Bonavico, assistant vice president at TransAmerica Premier Mutual Funds, a Cisco shareholder. "That
might be a good short-term play, but not a good long-term play."
Then there's the simple fact that some investors were burned too badly to buy Ascend's stock again. Ascend's main line of business faltered in 1997 when buggy software prompted ISPs to slow their purchases of the Ascend "remote access" products they use to link customers to the
Internet. Profits crumpled and disenchanted investors forced the stock down 70% from January to November.
But Ascend is cheaper than Cisco on a valuation basis. After peaking at a trailing price-to-earnings ratio of 80 last year, shares now
trade a bit over 30 times trailing earnings (excluding big merger charges). Cisco's P/E ratio is 51.
Mark Yu, research director at Norman L. Yu & Co. in Newport Beach, Calif., says his private investment firm started buying Ascend shares again last month after pulling out last year. While the firm also owns
Cisco, Yu says that Ascend looks like a better valuation play right now.
More importantly, Ascend is racking up impressive wins with its advanced technology acquired from Cascade. Williams Communications (WMB:NYSE) unveiled in January a $150 million deal to purchase Ascend ATM and frame relay equipment. AT&T (T:NYSE), which intends to pour $7
billion into its network this year, is rumored to be purchasing Ascend's ATM units instead of Cisco's. An AT&T spokesman declined comment, and says no announcement is imminent. Ascend could not be reached for comment.
And while Newbridge (NN:NYSE) sells a strong ATM product, the entire market is expected to grow robustly in coming years. Cisco disputes the contention that its products take a back seat. Marketing director Morgan Littlewood at Cisco says that it has been shipping a stronger BPX switch for some time, and that its dominance in other product lines doesn't hurt either. "We can also offer a full array of
technologies, including routers."
But Ascend might not need a full bag of tricks to prosper. The irony of its name might fade from memory |
