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Technology Stocks : Ascend Communications (ASND) -- Ignore unavailable to you. Want to Upgrade?

To: Diamond Jim who wrote (55381)	10/6/1998 10:45:00 PM
From: BMcV	Respond to of 61433

Monty says buy: Just came across this slightly dated research report from Montgomery analyst Al Tobia (from Sept 2, 98). The stock price was 38 1/16, after the August 31 drubbing. Here are a few excerpts: >>We have raised our rating on Ascend to BUY with a price target of $51. >>The quarter is on track, and fundamentals are sound in both RA and core switching. >>The Stratus acquisition is proceeding according to plan (see below). >>THERE IS RELATIVELY SMALL DOWNSIDE RISK (WE BELIEVE DOWNSIDE RISK IS $34). --How true! >>We believe the stock should trade up to $42-51 in the near term. In addition, expected renewed takeover speculation may push the stock higher (perhaps low $60s). >>Recent checks indicate that the September quarter is on track to meet Street expectations. We estimate Sept quarter revenues of $360 million (up 10% sequentially) and EPS of $0.31. >>Checks with the company indicate that the acquisition of SRA is proceeding according to plan and that Ascend expects to complete the acquisition in the middle of the fourth quarter. In addition, we believe there are 12 customers expected to trial the combined Ascend/Stratus solution over the next couple of quarters. [...] While the acquisition is expected to be accretive to 1999 EPS by roughly $0.10, we expect that the integration process in the fourth quarter of 1998 will likely lead to quarter-specific dilution of roughly $0.03. As a result, we have lowered our fourth quarter estimate from $0.36 to $0.33. There is no change to our 1999 estimate of $1.70, which management has endorsed.<< There is more on takeover analysis, which isn't very relevant now, since it is based on LU being in the 80s. The price targets are set by applying a target PE of 25-30 to next year's earnings. Why not a higher multiple, since they say "year-over-year revenue and EPS comparisons are expected to show strong growth in 1999 (59% and 55%, respectively)? Because, "we believe the perceived disadvantage associated with Ascend's size relative to competitors such as Cisco and Lucent will keep Ascend's multiples at a slight discount to these two companies". I wonder how many of the downward earnings revisions that have been posted here lately simply reflect SRA integration costs, as here with Monty for the 4Q, from 36 cents to 33.