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Technology Stocks : Computer Network Technology (CMNT) -- Ignore unavailable to you. Want to Upgrade?

To: Neil S who wrote (495)	1/21/1999 12:20:00 PM
From: swisstrader	Read Replies (1) \| Respond to of 750

A very quiet board considering CMNT just upgraded to STRONG BUY by Cowen!!!.....here's the link...enjoy!! biz.yahoo.com

To: Neil S who wrote (495)	1/25/1999 7:28:00 PM
From: Neil S	Read Replies (1) \| Respond to of 750

COWN: CMNT/UPGRADED ON SAN OPPORTUNITY, LIKELY CONTINUED STRONG RESULTS/STRONG BUY 09:26am EST 21-Jan-99 SG Cowen Securities Inc. (STIX, CHRISTOPHER 617-946-3700) SG COWEN Chris Stix /Vijay Rajamani 617-946-3700 January 21, 1999 Computer Network (CMNT: $13 7/16) RATING: Upgraded To Strong Buy With A $20 Target Price. UPGRADED ON SAN OPPORTUNITY, LIKELY CONTINUED STRONG RESULTS =========================================================================== EPS (FY Dec.) Quarterly EPS Old EPS New EPS P/E Q1 Q2 Q3 Q4 F97A $0.03 $0.03 nmf $0.02a $(0.04) $0.02a $0.03a F98E $0.23 $0.23 59x $0.02a $0.04a $0.08a $0.10 F99P $0.44 $0.44 31x $0.09 $0.10 $0.12 $0.14 Does not include the write-off associated with the Apertus or IntelliFrame acquisition. =========================================================================== Key Points: 1. CMNT Likely To Exceed Estimates For Q4:C98. Outlook Is Likely To Be Very Positive. 2. Leadership In Explosive Growth Storage Area Networking Business Points To Premium Valuation. 3. CMNT's Products Enable EMC's Remote SRDF, Making CMNT A Derivative Play On EMC. 4. New Product And New Customer Announcements Expected. 5. Upgraded To Strong Buy With A $20 Target Price Representing 45x C99 EPS. Thesis/Valuation: Computer Network Technology has long been a leader in connecting remote locations and users to host resources. Its Channelink products connect users to mainframes at high speeds, across long distances. Its gateway and web-to-host software products are used to connect open systems to host servers and databases. With the release of new storage area networking products, the company entered the explosive storage area network (SAN) market which connects both host and open systems to networked storage resources. The recent SG Cowen/PlugIn Datamation survey showed strong SAN deployment intentions among North American organizations, with 40% planning to deploy at some stage. OEMs and partners now include IBM, Exabyte, Cap Gemini, Hitachi, EMC, Sun, and Bay Networks. On the strength of a new management team, led by Tom Hudson, the company has met or exceeded Street expectations in the few quarters. We believe that the company can come close to achieving its target business model of 60% gross margin, 15% operating margin, and 25% top-line growth by the end of 1999. However, our 1999 EPS estimate of $0.44 is more conservative, reflecting 23% top-line growth and about 11% operating margins. We are upgrading CMNT to a Strong Buy because we believe that results are likely to exceed our expectations and the outlook will be positive. The company's visibility on its business is also improving. Our 12-month price target for CMNT is $20 (45x 1999E EPS of $0.44). We believe there is upside to our C99 estimates. CMNT Likely To Exceed Our Q4 EPS Estimate Of $0.10. We checked in with company management today and believe that CMNT is on track to exceed our Q4 expectation of $0.10 on $36MM in revenues. Visibility is improving and we believe that Q4 was more linear than Q3, with DSOs likely to improve to about 75 days, down from over 80 in Q3. Previously we had rated the stock a Buy, only because we were concerned about the back-end loaded nature of its quarters. CMNT Deserves A Premium Valuation Because It Serves The Explosive Storage Networking Market. According to Strategic Research Corporation, the SAN market is expected to grow to $1.2B by the year 2000. IDC shows the market growing by 125% in C99 and at least a similar amount in the year 2000. With its robust flexible solutions, that support both mainframes and open systems, local and remote storage and RAID arrays and tape libraries, CMNT is positioned as an early leader in this market. We believe that CMNT's valuation will look cheap as a number of storage networking companies reach the IPO stage later in C99. CMNT's Products Are Used To Implement EMC's Remote SRDF. EMC Will Be A Growth Driver. CMNT's Ultranet and Channelink products are used for remote disk mirroring applications. According to IDC, the number one success factor, for CMNT, and its competition was support for storage applications, particularly EMC's remote SRDF. CMNT is one of only two vendors supporting EMC's remote SRDF. Companies use this application to offer real-time or near real-time remote mirroring. By remotely mirroring their drives, they can avoid business disruptions as a result of a disaster at their primary computing site. CMNT had roughly twice the market share of the next largest competitor in the market. CMNT's C98 Channel Extension market share was 44.2%. Given that EMC is growing its top-line 37% Y/Y (Q3:C98), we certainly expect continued robust growth from CMNT. EMC trades at 52x C99 EPS and we believe that CMNT is a derivative play on EMC, thus justifying a premium valuation. New Product And Customer Announcements Are Likely To Be Positive For The Stock. Several new products are likely to ship in H1:F99, with the two IntelliFrame products, MapMaker likely to ship in Q1 and Process Dynamics likely to ship in Q2. Also, CMNT will ship Open Systems Director and Gateway in H1:F99. These products are pure Open Systems versions of Ultranet without legacy support and therefore available at lower price points. The new products point to positive momentum for the company entering F99. In addition, we expect the company to have significant announcements about new and expanded customer relationships as we move forward, as it has over the last 18 months. Internet Solutions Division Likely To Contribute To Growth. The company's web to host application reengineering products are getting some traction. With recent customer wins at Telia (through Cap Gemini) and AT&T, we expect strong growth going forward. ISD accounted for 17% of Q3 revenues. Operating Leverage Will Contribute Significantly To Earnings In C99. We continue to believe that operating expense leverage will contribute significantly to earnings in C99. In Q3:C98 the company's operating margin was 7.9%. The goal for Q4:C99 is 15%; we are carrying only 11.7% in our model. The operating leverage will come from sales growth combined with more modest growth in expenses. Upgraded To Strong Buy With A $20 Target Price Representing 45x C99 EPS. We believe that the outlook for CMNT is exceptionally strong. Its early leadership position in the storage networking market, which is projected to grow over 125% in C99; with growth being driven by its key role in implementing EMC's remote SRDF point to a premium valuation. With strong operating leverage opportunities on its income statement, we believe that EPS is likely to more than double in C99. We believe that there is upside to our Q4:C98 estimates. We fully expect to be increasing our C99 estimates following the company's Q4 earnings call on January 27th.