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Technology Stocks : TLAB info? -- Ignore unavailable to you. Want to Upgrade?

To: Brien Koehler who wrote (5398)	4/22/1999 5:30:00 PM
From: Beltropolis Boy	Read Replies (2) \| Respond to of 7342

excerpts from levy's post-earnings write-up -- a week old. you'd think he'd finally pick up a few shares for himself. ----- Tellabs, Inc: Tellabs Just Keeps on (Up)Ticking Author: Steven D. Levy (212)526-2499 / Sender Cohen x3777 / Andrea Green x3860 Rating: 1 Company: TLAB Country: SEO CUS Industry: TELECM Ticker : TLAB Rank (Old): 1-Buy Rank (New): 1-Buy Price : $108 5/16 52wk Range: $115-31 Price Target (Old): $110 Price Target (New): $140 Today's Date : 04/15/99 Fiscal Year : DEC Price (As of 4/14): $108 5/16 Revenue (1999): 2.3 Bil. Return On Equity (99): 32.7% P/E 1999; 2000 : 41.9X; 32.8X Disclosure(s): C Highlights: * Tellabs reported another excellent quarter which was well ahead of expectations. Revenues of $469.7 million were $21 million higher than our forecast of $448.6 million and EPS of $0.52 were 6% above our $0.49 estimate. * Our confidence level in Tellabs' ability to grow at or above 30% through the year 2001 has significantly upticked following yesterday's earnings release. * We are once again compelled to raise our revenue and earnings forecast for 1999 and 2000. Our new 1999 and 2000 top and bottom line numbers now include revenues of $2.26 billion (+36%) and $2.94 billion (+30%) and EPS of $2.58 (+33%) and $3.30 (+28%) respectively. * We are comfortable raising our end-of-year price target on TLAB shares to $140 from $110 based partially on our increase in EPS expectations for year 2000--$3.30 compared to our prior estimate of $3.15--as well as a higher target P/E multiple of 43 times forward 12 months earnings. * Tellabs remains our #1 idea in the Telecommunications Equipment industry. In our view the potential upside to current prices are significant enough to continue buying TLAB shares even though they have already appreciated by 60% year-to-date. ------------------------------------------------------------------------------ Summary and Recommendation In the current market environment it is hard to imagine any investor objecting to the idea of paying a premier valuation for the stock of a company that has (1) consistently exceeded expectations for more than eight years, (2) has grown in excess of 35% per year for most of the decade and is positioned to keep that growth rate going for the next few years, (3) is already one of the most profitable players in one of the most of the dynamic industries in the world, and (4) is about to introduce some of the most important and exciting products in its history. Therefore, we are comfortable raising our end-of-year price target on TLAB shares to $140 from $110 based partially on our increase in EPS expectations for year 2000--$3.30 compared to our prior estimate of $3.15--as well as a higher target P/E multiple of 43 times forward 12 months earnings, that is in line with the stock's current P/E and only a 40% premium to the company's growth rate. Tellabs remains our #1 idea in the Telecommunications Equipment industry. So How Long Can This Song Play On? Following the release of the company's first quarter results it is becoming even more clear, in our opinion, that the Tellabs melody is gaining strength and has a long way to go before it is fully played out. In fact, with two major new products in the area of fiber optic transmission only months away from field trials, and no loss in momentum in the march of new customers signing up for the company's two flagship products, our confidence level in Tellabs' ability to grow at or above 30% through the year 2001 has significantly upticked. With a harmonious orchestra of strong industry fundamentals supporting the Tellabs song our optimistic view could once again be proven conservative. Some incremental "tick"ler items that should boost investor confidence in Tellabs ability to meet or exceed expectations: * Backlog grew materially during a period that does not traditionally produce a book-to-bill ratio greater than 1:1. * In addition to the tremendous performance of Tellabs' flagship digital cross-connect system, the TITAN 5500, its older, non-SONET digital cross-connect system, the 532L experienced an acceleration in demand. This is a sign, in our view, of the longer-than-average product life cycles in the telecommunications equipment market. * Tellabs continues to sign up new carriers for its products with 13 new Martis DXX networks and five new TITAN 5500 service providers clients. With more than 165 Martis customers and 85 TITAN 5500 customers Tellabs has a tremendous installed base to expand-read very profitable add-on and expansion business-and sell new products to. * A late-life kicker for the TITAN 5500, Feature Package 6.0, which essentially doubles the size of existing systems, was released late in the quarter and probably accounts for a good portion of Tellabs' increased near-term visibility. * Absolute accounts receivables declined sequentially by almost $100 million, or 20% even though revenues declined by less than 10%. This effectively removes the one small blemish on Tellabs otherwise pristine balance sheet. For most of the decade we have maintained earnings projections that have been at the high-end of the street only to be shown up by the company's actual performance. While we recognize that the day could come when an uptick to EPS estimates is not called for, today is not that day. Thus, we are once again compelled to raise our revenue and earnings forecast for 1999 and 2000. Our new 1999 and 2000 top and bottom line numbers now include revenues of $2.26 billion (+36%) and $2.94 billion (+30%) and EPS of $2.58 (+39%) and $3.30 (+28%) respectively. These figures are $48 million, $60 million, $0.12 and $0.15 above our prior projections. Investors should note that approximately $0.04 per share per year of the increase in EPS estimates comes from a lower tax rate assumption but the majority of it is clearly related to higher sales and slight improvements in operating profitability. Investment Thesis Intact; Keep Buying TLAB Shares The critical components of our investment thesis on Tellabs have been, and remain, that the stock should continue to do well because of (1) strong industry fundamentals, (2)excellent and possibly dominant product positions in select industry sub-segments, (3)better than expected technical capabilities to deliver "new age" products, and (4) a high likelihood of uptick surprises relative to even the most optimistic estimates. The only threat to this thesis is not likely to surface until the end of this year or early next year when Tellabs is scheduled to bring out the successor product to the TITAN 5500. At that time, and most probably not much before then, investors should have enough information to decide whether the next major leg up on TLAB shares is likely to be more of the same or whether a new day (and millenium [sic]) is dawning. In our view the potential upside to current prices are significant enough to continue buying TLAB shares even though they have already appreciated by 60% year-to-date. BUSINESS DESCRIPTION: Tellabs offers a wide range of voice and data communications products used by telephone companies, cellular carriers, interexchange carriers, governments, and businesses worldwide. ------------------------------------------------------------------------------ Disclosure Legend: A-Lehman Brothers Inc. managed or co-managed within the past three years a public offering of securities for this company. B-An employee of Lehman Brothers Inc. is a director of this company. C-Lehman Brothers Inc. makes a market in the securities of this company. G-The Lehman Brothers analyst who covers this company also has position in its securities.