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

To: SteveG who wrote (1767)	4/13/1999 1:10:00 PM
From: SteveG	Respond to of 1998

ADTN: Downgrading to HOLD; Recommend Swap into PairGain. - We are downgrading shares of Adtran to a HOLD. - No change to forward estimates. Investment conclusion. We are downgrading shares of Adtran to HOLD and recommending that investors swap out of shares of Adtran into PairGain (PAIR, $10 1/4, BUY). We believe that, at current levels, shares of PairGain offer the potential for significantly more upside than Adtran. We believe that Adtran's valuation fairly reflects growth expectations for the company's revenue mix (including slower-growth ISDN and DDS markets). On the other hand, PairGain's current stock represents a significant value at its current level, and does not appear to reflect the many positives operating in the company's favor (see today's PairGain note). It appears that companies with ADSL exposure have seen considerable share appreciation recently; we believe that PairGain, which has lagged in this ADSL-related rise, could begin to see a benefit. In our opinion, any significant win for PairGain in this space is likely to be viewed very positively for the stock. - We are downgrading shares of Adtran to a HOLD. We are lowering our rating on shares of Adtran to a HOLD from a BUY. - No change to forward estimates. There is no change to our forward revenue and earnings estimates. For the March quarter, we are forecasting revenue of $75.0 million and EPS of $0.27. Investment conclusion. We are downgrading shares of Adtran to HOLD and recommending that investors swap out of shares of Adtran into PairGain (PAIR). We believe that, at current levels, shares of PairGain offer the potential for significantly more upside than shares of Adtran. While Adtran remains well positioned in the HDSL market, we believe that the company's valuation fairly reflects growth expectations for the company's revenue mix taken in aggregate. This revenue base (including slower-growth ISDN and DDS markets, in addition to HDSL), is expected to grow roughly 11% in 1999, with the potential for higher growth in 2000. Given the stock's current 1999 P/E multiple of 17x, we believe that shares of Adtran are fairly valued. On the other hand, 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 the company's favor (see today's PairGain note for more information). With respect to recent market developments, it appears that ADSL activity in the U.S. has been gaining significant momentum, and companies with ADSL exposure have seen considerable share appreciation recently. We believe that PairGain, which has yet to share in this ADSL-related rise, could begin to see a benefit. Current valuation levels assume little contribution from the company's new DSLAM platform, the Avidia. This product is being evaluated by several potential customers, including Sprint and various CLECs: In our opinion, any significant win in this space is likely to be viewed very positively for Pairgain. As a result of our belief in the significantly higher upside potential in PairGain, we recommend that investors swap out of Adtran and into PairGain.