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Technology Stocks : Orckit (ORCT) -- Ignore unavailable to you. Want to Upgrade?

To: SteveG who wrote (1764)	4/13/1999 12:16:00 PM
From: SteveG	Read Replies (2) \| Respond to of 1998

NBMO: PairGain: Reiterating BUY with a $20 price target. - Reiterating our BUY rating on shares of PairGain with a $20 price target. - PairGain's recent EPS have been penalized due to the company's R&D investments in ADSL technology. However, the company's valuation multiples have received no benefit. - With potential contract wins and revenue growth in the strengthening ADSL market, we believe that shares of PairGain stand to appreciate significantly the near-term. Investment Opinion. We are reiterating our BUY rating on shares of PairGain with a $20 price target, and recommending that investors swap out of Adtran (ADTN, $20 7/16, HOLD) into PairGain. We are establishing a preliminary 2000 EPS estimate of $0.55, which we believe may prove conservative, should the Avidia begin to contribute meaningfully. In addition, we believe that if PairGain is able to find success with Avidia, investors likely will begin to attribute value to this asset, rather than penalize the company for its investment. In such an environment, we would expect expansion in the company's P/E multiples from the current level of 25x to around 35x. Applying this multiple to our preliminary 2000 EPS estimate of $0.55 yields our 12-month price target of $20. Shares of PairGain remain rated BUY. - Reiterating our BUY rating on shares of PairGain with a $20 price target. We are taking this opportunity to reiterate our BUY rating on shares of PairGain. - PairGain's recent EPS have been penalized due to the company's R&D investments in ADSL technology. As is well known, over the past year, competition in PairGain's primary historical market (HDSL) has heated up following Adtran's aggressive efforts to gain market share. As a result of this competition, ASP declines in this market became rather steep, which has had the effect of limiting overall revenue growth for the company as a whole, despite strong unit growth in the HDSL market. As a response to this increased competition, PairGain elected to increase its R&D expenditures in the ADSL space in an effort to branch into this high-growth market. While the result of this spending, the new Avidia DSLAM (DSL Access Multiplexer) platform, is promising, the increase in R&D has led to poor earnings comparisons over the past several quarters. We believe that shares of PairGain have been penalized for this R&D investment for the past several quarters. - However, the company's valuation multiples have received no benefit. While earnings have certainly suffered due to this increased R&D, PairGain's valuation multiples have not improved to reflect the increased opportunities derived from this investment. In other words, we believe that PairGain's current stock value discounts relatively little contribution from the Avidia. - With potential contract wins and revenue growth in the strengthening ADSL market, we believe that shares of PairGain stand to appreciate significantly in the near-term. The company remains extremely positive about this product's prospects, and we believe that it currently is in trials with a number of carriers, including Sprint as well as several CLEC customers. In our opinion, any significant win in this space is likely to be viewed very positively for Pairgain. Investment Opinion. We are reiterating our BUY rating on shares of PairGain with a $20 price target. In addition, we are concurrently downgrading shares of Adtran to a HOLD and recommending that investors swap out of Adtran into shares of PairGain. By virtually any metric (book value per share of $3.75 and cash per share of $3.15), PairGain's stock represents a significant value at its current level, and does not appear to reflect the many positives potentially operating in PairGain's favor. The company's 1998 return on non-cash equity was 67.8%, and return on non-cash assets was 35.2%. We continue to believe that the opportunity for upside appreciation in the stock remains significant. We are establishing a preliminary 2000 EPS estimate of $0.55, which we believe may prove rather conservative, should the Avidia begin to contribute meaningfully. More important, however, we believe that if PairGain is able to find success with Avidia, investors likely will begin to attribute value to this asset, rather than penalize the company for the investment. In such an environment, we would expect expansion in the company's P/E multiples from the current level of 25x to around 35x. Applying this multiple to our 2000 EPS estimate of $0.55 yields our 12-month price target of $20.

To: SteveG who wrote (1764)	4/13/1999 12:25:00 PM
From: SteveG	Read Replies (2) \| Respond to of 1998

Westell: Downgrading to HOLD; recommend swap into Orckit and PairGain. We are downgrading shares of Westell to a HOLD from a BUY. - Stock has risen 144% over last several days, and we believe stock is fully-valued. - Recent Bell Atlantic announcements are positive, but fundamental outlook for the company remains challenging. - Significant challenges persist, including restructuring, and transitions to both new products and new customer base. Investment conclusion. We are downgrading Westell to a HOLD and recommending that investors swap out of shares of Westell into other plays in the ADSL space, including Orckit (ORCTF) and PairGain (PAIR). -We are downgrading shares of Westell to a HOLD from a BUY. We are lowering our rating on shares of Westell Technologies to a HOLD from a BUY. - Stock has risen 144% over last several days, and we believe stock is fully-valued. Westell's stock has risen 144% over the last several trading days, following two announcements regarding the company's relationship with Bell Atlantic (see below). At the current level, we believe that shares of Westell are fully-valued. - Recent Bell Atlantic announcements are positive, but fundamental outlook for the company remains challenging. The significant move in the stock over the last several days follows the release of two announcements regarding the company's business with Bell Atlantic, its primary ADSL customer. - Last week's ADSL CPE contract extension positive in terms of validation, but does not affect estimates. The first announcement stated that Bell Atlantic has extended its agreement with Westell under which Westell will provide Bell Atlantic ADSL equipment for the customer premise (CPE). As we noted a few days ago, this announcement does not represent a material change in the company's relationship with Bell Atlantic. It gives Westell neither exclusive rights to supply the CPE equipment nor any position in the DSLAM buildout (which is not Westell's focus). In addition, the announcement is not expected to have a material effect on the company's earnings. While this announcement was viewed as positive (as it quells fears that Bell Atlantic was set to move away from Westell in the near-term), we do not believe that it fundamentally alters the outlook for the company. - Yesterdays' announcement also is not material. Yesterday, Westell announced that Bell Atlantic will be using Westell's Proact Performance Monitoring Digital network interface unit for deployment on new and selected existing T1 circuits. This product allows Bell Atlantic to determine whether there is a fault or interruption in the network or at the customer's premise without putting the customer's circuit out of service. Again, while we view this announcement as positive from a psychological perspective, we do not believe that the announcement alters the company's fundamental outlook. - Significant challenges persist. It is important to note that Westell still faces significant challenges. - Difficult competition in ADSL space. It is important to note that we believe Westell's ADSL technology is behind that of its competitors' (Alcatel, Orckit and Cisco). In addition, the top-tier RBOC customers have already aligned themselves with their primary ADSL suppliers. While Westell still may win second-source ADSL supplier status with some RBOC customers this year, we view this as unlikely; more to the point, we do not believe that Westell will see the significant ramp in ADSL revenues that these other vendors will. - Restructuring underway. Most important, the company has recently announced a significant restructuring, which includes a shift in the company's customer focus (from top-tier service providers to smaller players), a planned downsizing (both workforce reductions and production capacity reductions) and increased dependence on new products for revenue generation. While the company expects that these actions will reposition the company for future growth with improved profitability, we believe that these factors represent significant challenges looking forward. Investment conclusion. We are downgrading Westell to a HOLD and recommending that investors swap out of shares of Westell into other plays in the ADSL space, including Orckit (ORCTF) and PairGain (PAIR). Orckit Communications (NASDAQ-ORCTF; $26 3/4; BUY): On March 29, we reiterated our BUY rating on Orckit, with a near-term price target of $30. We are establishing a 12-month price target of $40 on shares of Orckit, based on a 20x multiple applied to estimated earnings power of $2.00 in 2001. In our opinion, Orckit represents a near pure-play on the expected deployment of ADSL for faster connections to the internet. We believe that shares of Orckit offer particularly strong appreciation potential due to the ADSL pure-play aspect as well as the earnings leverage from strong ADSL business. In addition, it should be noted that GTE (Orckit's primary ADSL customer) will be holding a meeting this Wednesday to discuss its Internet strategy; we expect that the plans laid out by GTE will be aggressive and should be a psychological positive for shares of Orckit. PairGain Technologies (NASDAQ-PAIR; $10 5/16; BUY): We believe that PairGain's current stock value discounts relatively little contribution from PairGain's new DSLAM platform, the Avidia. The company, however, remains extremely positive about this product's prospects, and we believe that it currently is in trials with a number of carriers, including Sprint. In our opinion, any significant win in this space is likely to be viewed very positively for Pairgain. Furthermore, by virtually any metric, PairGain's stock represents a significant value at its current level, and does not appear to reflect the many positives operating in PairGain's favor.