5/15/98 RedHerring. Stix (Cowen) very bullish comments on ASND. Also, analyst updates on CLECs (ASND customers)
Promises, promises
Ascend Communications (ASND) was also given the nod as Cowen & Co. took it from Buy to Strong Buy and DLJ raised it from Market Perform to Buy. Analyst Chris Stix with Cowen & Company said that he had raised his price target on Ascend to $55 due to "exceptionally strong product positioning which the company has in carrier ATM with its GX550 product."
Mr. Stix indicated that the company recently won sales with Williams (WMB), AT&T (T), GTE (GTE), Qwest (QWST), and NTT (NTT) and that Ascend is likely to win more outstanding deals. "Ascend will meet or exceed our expectations," promised Mr. Stix. "As we exit the year, we expect Ascend to show a 40 percent year-over-year growth and thus it deserves a premium price-earnings ratio as one of the faster-growing players in Internet infrastructure." Ascend has made a swift comeback from the low 20s when it missed its September quarterly numbers, but then made the December quarter, and beat the March quarter. As Mr. Stix concluded, "Ascend's got more product orders in their future than we have in our model."
Entire article
ANALYST UPDATE: PUTTING TELECOM IN PLAY
By Peter D. Henig
May 15, 1998
Wall Street analysts have given a collective green light to
the telecommunications industry, upgrading a slew of
telcos, Baby Bells, communications firms, and
competitive local exchange carriers in the wake of SBC
Communications' (SBC) $61 billion bid for Ameritech
(AIT).
In the same upbeat manner, Broadcom's (BRCM)
underwriters felt the need for speed, initiating coverage
of the chipmaker with Buy and Accumulate ratings, while
a few long-distance carriers were pulled along for the
ride.
To hell with competition
Although politicians are already demanding close scrutiny
of the SBC-Ameritech deal, fearing the merger would
quell the competition the 1996 Telecommunications Act
was supposed to unleash, Wall Street appears none too
concerned.
In one quick shot, A.G. Edwards, the powerhouse
investment firm of the South, upgraded U.S. West
(USW), Ameritech, BellSouth (BLS) and Bell Atlantic
(BEL), dragging them out of the Reduce pile and onto
their Maintain list. While an upgrade to Maintain might
not seem like much, it speeds A.G. Edwards hand on the
trigger for future upgrades.
Likewise, analysts with CS First Boston and Prudential
Securities gave their own special blessing to the deal,
upgrading Ameritech (AIT) and SBC Communications
from Hold to Buy.
Guy Woodlief, analyst with Prudential Securities, is
bullish on SBC, and thinks the deal will go through. "It's
going to be a tough road with a lot of yelling and
screaming," said Mr. Woodlief. "But it will probably
happen in one form or another."
That's a bit more bullish than the chances Greg Miller,
analyst with Jefferies and Co., gives the deal: "I'd say it's
a 50-50 chance whether that deal gets done." Another
analyst on the Street, who asked not to be named,
explained that simply merging with Ameritech may not
have been SBC's only motivation. "Those are pretty
sharp guys down there at SBC, and they're known for
being pretty aggressive in going after what they want."
Does that mean SBC would be willing to put $61 billion
on the table just to test the law? "Could be. It's not out of
the question."
Good news for CLECs
Under the Telecom Act, the Baby Bells cannot enter the
long-distance market unless they first open their local
markets to competition. While most Bells have stalled on
opening their markets, the new need to win approval of
the merger could push SBC and Ameritech to be more
liberal with competitors. Even though analysts don't see
final approval of the acquisition for at least a year, the
Street appears generally bullish on the deal, which has
opened up the new possibility of third-party acquisitions
of competitive local exchange carriers (CLECs).
Stephanie Comfort, telecommunications analyst with
Morgan Stanley, upgraded Intermedia Communications
Inc. (ICIX) to Strong Buy from Outperform based on
the possibility of such third-party CLEC takeovers.
Intermedia operates in 21 of the 30 markets SBC and
Ameritech plan to enter, but has little overlap in the Baby
Bells' core regions.
So clear, you can hear a rating drop
On the long-distance front, Pacific Gateway
Communications (PGEX) was the lone downgrade as
Jefferies and Co. reduced the long-distance wholesaler
from Buy to Hold. Analyst Greg Miller with Jefferies and
Co. said his downgrade was based on price, as the
stock has moved well through his $55 price target. "The
stock has had a tremendous run-up and has made a lot
of people happy," said Mr. Miller. "But don't be
surprised if we change our position in a few months if
there appears to be some more upside to revenue
growth ... it has one of the best management teams in the
industry."
Not to be outdone by the locals, long-distance carriers
Sprint (FON) and Star Telecommunications (STRX)
also received Buy recommendations from Donaldson
Lufkin Jenrette and Kaufman Bros., respectively,
reflecting telecom services' solid upswing.
Promises, promises
Ascend Communications (ASND) was also given the
nod as Cowen & Co. took it from Buy to Strong Buy
and DLJ raised it from Market Perform to Buy. Analyst
Chris Stix with Cowen & Company said that he had
raised his price target on Ascend to $55 due to
"exceptionally strong product positioning which the company has in carrier ATM with its GX550 product."
Mr. Stix indicated that the company recently won sales
with Williams (WMB), AT&T (T), GTE (GTE), Qwest
(QWST), and NTT (NTT) and that Ascend is likely to
win more outstanding deals.
"Ascend will meet or exceed our expectations,"
promised Mr. Stix. "As we exit the year, we expect
Ascend to show a 40 percent year-over-year growth
and thus it deserves a premium price-earnings ratio as one of the faster-growing players in Internet infrastructure." Ascend has made a swift comeback from the low 20s when it missed its September quarterly numbers, but then made the December quarter, and beat the March quarter. As Mr. Stix concluded, "Ascend's got more product orders in their future than we have in our model."
Move over, Intel?
Are we seeing the birth of a new Wall Street darling?
We've already written about Broadcom's IPO of the
year, but now Wall Street has backed up the truck,
tweaked its financial models, and is ready to load up with Broadcom stock. Hambrecht & Quist and BT Alex.
Brown have initiated coverage of the specialized
chipmaker with Buy ratings; Deutsche Morgan Grenfell
started it with an Accumulate; Morgan Stanley, however,
is sticking with a Neutral recommendation for now.
Although the four investment firms were also Broadcom's
underwriters for its IPO -- no surprise that they would
now all be covering the stock -- the buzz on the Street is that Broadcom and other highly specialized chipmakers
such as Level One Communications (LEVL) and PMC
Sierra (PMCS) represent the new darlings of the
semiconductor field.
Is the semiconductor market fracturing? Quite possibly.
In fact, even Intel has decided what it can't do on the
assembly line, it's able to do with its investment strategy:
It's had a stake in Broadcom, and hence its success,
from early on.
HP takes it on the chin
What's an analyst report without a little bad news on the
downside?
For this week's whipping boy, we had Hewlett-Packard
(HWP) with three major downgrades following its
announcement that earnings for the fiscal second quarter,
which ended in April, will be below expectations.
Goldman Sachs took HP off its Recommended list,
placing a Market Outperformer rating on the stock.
Daniel Kunstler at J.P. Morgan reduced it from a
Long-Term Buy to a Market Perform. Lehman Brothers
downgraded the company from Buy to Outperform.
What could make HP's stock plummet 14 percent in
Thursday's session alone? Well, how about a 10-cent
miss on earnings? The company said Wednesday after
the markets closed that its earnings are expected to
come in at about 65 cents per share, versus 75 cents per
share reported for the same period last year. Analysts
had been expecting profits of 74 cents a share, according
to First Call.
We liked Star from the very beginning.
Is telecom as we know it alive and twitching after all?
Any thoughts on the SBC/Ameritech deal? Give us some
analysis.
c Herring Communications |
