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Technology Stocks : Newbridge Networks -- Ignore unavailable to you. Want to Upgrade?

To: Glenn McDougall who wrote (7901)	11/26/1998 6:23:00 AM
From: Glenn McDougall	Read Replies (2) \| Respond to of 18016

Newbridge stock soars 17% on good earnings, new contracts James Bagnall The Ottawa Citizen Newbridge Networks Corp. share prices leaped nearly 17 per cent yesterday as analysts lavished praise on the firm's recent turnaround. The immediate catalyst for the jump was a solid second quarter for the company, combined with the signing of a potentially lucrative new contract with China Post. Earnings were up 34 per cent compared with the first quarter, and sales of its two main product lines were healthy. Newbridge shares hit $45.30 by the close of trading yesterday on the Toronto Stock Exchange, up $6.55 on the day. This represents a one-day gain in market value of almost $1.2 billion. The surprising part of this rise is that analysts generally haven't raised their earnings estimates for future quarters. Indeed, in at least one case, these have come down significantly. Nor is Newbridge the only big winner from the China Post deal. Archrival Ascend Communications Inc. of Alameda, California, also announced yesterday that it, too, was selected to provide next-generation data switches to the Chinese government agency. Ascend shares closed yesterday on the Nasdaq exchange at $57 1Ú8 U.S., up 2.4 per cent on the day. Of course, Ascend has been trading at or near its 52-week high for the past week; Newbridge shares are still valued at less than half the record high reached 13 months ago. This is true even though the share price has soared 38 per cent since the close of trading Nov. 16. In fact, Ascend's market capitalization is $12.3 billion U.S., compared with a shade higher than $5 billion U.S. for Newbridge. It's a huge gap considering both firms generate similar annual revenues and are expected to post similar earnings growth next year. The gap between the rivals is what provides the context for Newbridge's recent explosion in share value. For most of the past year, Newbridge shares have been hugely depressed by a series of missed earnings estimates and one-time hits from a takeover gone wrong. But, starting with the mid-year hiring of Alan Lutz as the firm's chief operating officer, Newbridge has begun to set things right in the eyes of analysts. Mr. Lutz started by spending a lot of time with the firm's investors and the analysts who cover the company. Two things helped him to quickly establish credibility. First, Newbridge's core business -- the sale of multimedia switches that use asynchronous transfer mode (ATM) technology -- has always been strong. Second, major carriers around the world are now starting to spend heavily on upgrading their data networks. ATM is becoming mainstream technology. All of this, combined with tighter management controls at Newbridge, is giving investors more confidence that Newbridge can actually meet analysts' current projections. "Newbridge is breaking away from its past," BancBoston Robertson Stephens analyst Paul Silverstein wrote in a research note published yesterday. "It faces a significantly brighter future with chief operating officer Alan Lutz being the catalyst of change." Mr. Silverstein delivered this conclusion even as he reduced his profit estimate for Newbridge's current fiscal year to 81 cents U.S. from 86 cents U.S. "We are trimming our fiscal 1999 and 2000 estimates to bring them in line with consensus estimates," he noted. "We remain no less confident regarding the company's progress." Neither George Hunt, an analyst with Interstate/Johnson Lane, a Charlotte, North Carolina-based securities firm, nor Patrick Houghton, an analyst with Sutro & Co. of San Francisco, is changing his earnings estimate for fiscal 1999, ending next April 30: 82 cents U.S. per share and 81 cents U.S. per share respectively. Even so, both liked what they saw in Newbridge's second quarter. "The turnaround in Newbridge is gaining momentum," said Mr. Hunt, who has a 'strong buy' recommendation on the company as well as a 12-month share price target of $30 U.S. with "substantial upside" if Newbridge can show that ATM and Internet protocols are complementary technologies. Newbridge closed yesterday on the New York Stock Exchange at $29.50 U.S., up $4 3Ú8 on the day.) Mr. Houghton is even more aggressive. He is calling for Newbridge shares to hit $36 U.S. (roughly $55 3Ú8 on the TSE) within 12 months. Finally, there are several intangibles influencing the share price. Mr. Lutz said Monday that Newbridge's two-year old alliance with Siemens AG of Munich was back on track, prompting some speculation that the German giant could prepare a takeover bid. James Kedersha, an analyst with New York-based Cowen & Co. believes Siemens would come into play only as a "white knight" in the event Newbridge was the object of a hostile takeover. Lucent Technologies Inc. of New Jersey and LM Ericsson of Stockholm are also potential alliance partners or acquirers of Newbridge. However, Newbridge chairman Terence Matthews still controls a 23-per- cent chunk of his firm and is considered unlikely to tender his shares to any firm at current share prices. However, he might be receptive to the idea of a small equity investment from either firm.