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Technology Stocks : TLAB info? -- Ignore unavailable to you. Want to Upgrade?

To: Curbstone who wrote (3531)	9/4/1998 5:06:00 PM
From: ALTERN8	Read Replies (1) \| Respond to of 7342

Lower Price Target & Earnings Est. for 1998-99 Subject: Tellabs, Inc.* (TLAB--$42 1/2)--OTC Opinion: BUY ============= Date: September 4, 1998 ------------------------------------------------------------------------------- Market Profile 52-Week Range $93-$41 \| EPS Growth Rate (3-5 Yrs.) 30% Avg. Daily Volume 8,050 M \| ROAE (LTM) 27% Shares Outstanding 188.0 MM \| Debt to Total Capital 0% Market Capitalization $7,990 MM \| Book Value Per Share $4.96 Floating Market Cap. $6,983 MM \| Indicated Dividend/Yield None Institutional Owner. 70% \| Revenue (LTM) $1,379 MM Insider Holdings 13% \| _______________________________________________________________________________ Earnings/Share Fiscal Consensus Calendar 1Q/Mar 2Q/Jun 3Q/Sep 4Q/Dec Year Est. # P/E Ratio ------ ------ ------ ------ ------ --------- --------- 1997 $0.27 $0.32 $0.34 $0.42 $1.35 $1.35 31.5x Current: 1998E 0.37A 0.46A 0.48 0.54 1.85 1.84 23.0x Prior: 0.50 0.57 1.90 Current: 1999E - - - - 2.30 2.32 18.5x Prior: 2.44 ------------------------------------------------------------------------------- Highlights: - We are lowering our 1998-99 est. from $1.90 and $2.44 to $1.85 and $2.30/sh. - These are pro forma estimates that assume the Ciena merger gets done. - Tellabs fundamental outlook is strong, but Ciena's may fluctuate. - We concur with Ciena's sales est. $880 mm for 1998, but pro forma gross margins may be under more pressure; revised from 62.4% to 61% level. - Margin risk relates to pricing pressure on Ciena's DWDM products. - Near term, Tellabs and Ciena stock performance is restrained by the delay in the shareholder vote on the Ciena merger until mid November. - We are lowering our price target from $95 to $80 which is 35x 1999 EPS est, based on our lowered EPS estimates and reduced industry valuation. ------------------------------------------------------------------------------- INVESTMENT THESIS: We are disappointed with the delay of the merger and the increased uncertainty of Ciena's performance. However, we believe Ciena contributes to Tellabs strategy to accelerate its optical broadband platform, and we believe Ciena is additive to Tellabs earnings growth to sustain above a 30% long term growth rate. Detailed models available upon request. MODEL ASSUMPTIONS, 1999e - KEY CHANGES Gross Margins: We lowered 1999 from 62.4% to 61% which still assumes Tellabs can get higher operating efficiencies from Ciena which is 30% of total pro forma sales. R&D: We increased this line item from 10.9% to 12% of total sales. Management is committed to investing in future products such as optical cross connects. SG&A: No material changes from prior model changing from 15% to 14.7% as a percentage of total Revenues: No change in Tellabs, but we did lower Ciena from $900 mm to $880 mm. We assume the following; $300 mm from IXCs ( $130 mm from Sprint, $115 mm from WorldCom/MCI, $0 mm from AT&T and $55 mm from other), $370 mm from ILECs/CLECs ( $240 mm from BEL/RBOCs, $100 mm from CLECs, $30 mm from other), and $170 mm from foreign carriers and $40 mm from Alta. CIENA FINANCIAL OUTLOOK FOR 3Q98 AND 1998 ON A STAND ALONE BASIS: We will adjust our EPS est. after the company releases the July quarterly results expected in the next two weeks with a SEC filing. First Calls consensus earnings for 1998-99 are $1.10 and $1.26, respectively. We are confident the Tellabs merger will be consummated. ===============================================================================