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Technology Stocks : MRV Communications (MRVC) opinions? -- Ignore unavailable to you. Want to Upgrade?

To: Glenn D. Rudolph who wrote (10501)	8/30/1998 10:09:00 AM
From: Grommit	Read Replies (2) \| Respond to of 42804

Glenn - you are so right. 1. I must link here in case any missed it. Message 5621756 2. Recall this: GRUNTAL report(7/28/98) comments: MRVC Gruntal & Co.,L.L.C. 1998. All Rights Reserved. Gruntal & Co., L.L.C. ú Established 1880 ú 14 Wall Street, New York, NY 10005-2176 ú Telephone (212) 267-8800 Member New York Stock Exchange, Inc. and other principal exchanges ú Member SIPC RECORD QUARTERLY RESULTS BEAT OUR ESTIMATES REASONS FOR STRONG BUY We are reiterating our Strong Buy recommendation as the company reported better-than-expected 2Q98 results. The company reported 2Q98 EPS of $0.31 versus $0.21, exceeding our estimate of $0.29. 2Q98 revenue increased to a record $65.7 million, or 66.3% over the year-ago period and 8.1% sequentially. This was also higher than our estimate of $64.1 million. This was the 34 th consecutive quarter of sequential revenue growth for the company. Net income for 2Q98 was $8.7 million, or $0.31 per fully-diluted share, ahead of our estimate of $8.2 million. Raising 1998 EPS estimate. As a result of the strong quarterly results, we are modestly increasing our EPS estimate for 1998 to $1.25 from $1.24 and maintaining our 1999 EPS estimate of $1.73. We are increasing our revenue estimate for 1998 to $268.5 million, from $264.8 million, and for 1999 to $377.7 million, from $376.7. Reported results showed sequential improvements in gross margin and balance sheet measures, such day sales outstanding (DSOs) and inventory days outstanding. Networking products accounted for 82% of total revenues and fiber optic components the remaining 18%. Geographical split of revenues was: United States 40%, Europe 45.5%, Asia/Pacific 10%, and rest of world 4.5%. Revenue growth in 2Q98 was driven by strong growth in high-end optical networking products (40% of revenues) and sales due to carrier class customers (18% of total revenues). The conference call was upbeat and management was excited about the company's prospects. SIGNIFICANT NEW CUSTOMER WINS DURING 2Q98. The company continues to gain momentum in the high-end networking arena, as reflected by some significant new customer wins. Some of the new end customers added during the quarter included the following: Florida Power Light, Nextel, a major Canadian telephone carrier, a major overnight delivery carrier, the City of London Telecom, and a major food distributor in Italy. Management indicated that business with carrier-class customers, such as long-distance carriers CLECs and ILECs, is expected to increase substantially over the coming quarters. CONTINUED BALANCE-SHEET IMPROVEMENT. During 2Q98, the company achieved further sequential improvements in both inventory turns and DSOs. Inventory days outstanding declined to 112 from 118 at the end of 1Q98. DSOs declined to 84 days from 88 days in the prior quarter. Management indicated that additional improvements in these measures should be achieved in subsequent quarters. We were pleased to see the progress made in this regard during the quarter and we believe that this removes a potential negative in the eyes of investors. XYPLEX ACQUSITION ALREADY PAYING DIVIDENDS. The company has been able to assimilate the Xyplex acquisition in a remarkably short time frame and is now beginning to see the benefits stemming from this acquisition. Benefits include new products, such as the EdgeGuardian and remote access products, a streamlined and more productive salesforce and the ability to generate additional revenue streams, such as support and maintenance. We believe that the Xyplex acquisition has truly positioned MRVC to be a major participant in the enterprise/carrier arena. NEW PRODUCT INITIATIVES TO DRIVE FUTURE GROWTH. MRVC has begun work on a carrier class switch that utilizes terabit routing. This new product is expected to ship mid-1999. The EdgeGuardian product, which began shipping in 2Q98, is expected to ramp up in volumes by 4Q98. The company has also made a major push in next-generation Dynamic DWDM devices that will be incorporated with router and switching technology to provide routing, switching, and optical cross-connect functions for future optical networks. VALUATION / PRICE TARGET We believe that MRVC shares continue to be very attractive based on valuation. MRVC shares currently trade at modest P/E multiples of 16x our 1998 EPS estimate and 11.5x our 1999 EPS estimate, a significant discount to the long-term earnings growth rate of 40% and at a discount to its networking peers. We are continuing to maintain our 12-month price target of $43.00 and our Strong Buy investment rating. OTHER CONSIDERATIONS On June 26 th , the company completed $100 million 5% convertible subordinated note issue, which raised net proceeds for the company of $96.4 million. Management indicated that the proceeds would be used to pursue an aggressive foray into optical networking, as well as opportunistic acquisitions. Overall headcount at quarter end was 723, consisting of 162 R&D, 280 in marketing/sales/support, 208 in manufacturing, and 73 in G&A. ......... 3. OK they could have worded the press release differently. They could have said sales will only by up 30% year over year instead of saying they will be down 10-15% sequentially. They could have added a few paragraphs of reassurance, but I am sure the attorneys would have advised not to. They make .12 to .15 a share this qtr. The stock market is not making sense, wait a few weeks and let it come back to some more reasonable understanding before you sell any at these levels. 4. Message 5336142