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Contributors: Douglas McIntyre Jon C. Ogg

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Wednesday, July 19, 2006

Widely Traded 48 Hour Clock: JDSU's Quagmire Holding the Stock Down

Stock Tickers: JDSU, ALA, LU

JDS Uniphase (JDSU) is constantly one of the most active names on the street, but it is more a function of the share price than anything else. The same could be said for Lucent (LU), but that is a different story and that is going through its attempt to become Lucatel or whatever it will be called after the Alcatel (ALA) attempt to buy the company is completed. A $2.00+ stock can trade 50 million shares in a day, and it is only a fraction of what a GOOG impact can be in trading volume as far as Dollar amounts.

Right now is a very difficult environment for telecom equipment and fibre equipment providers. The proliferation of VoIP helps, but the fact that the major telecom mergers is creating an environment that we have described as one where you will see "Big Hits and Bad Misses." Will JSU be a winner or a loser in this environment? The verdict is still out there. The stock has recovered 10% from its recent lows, but it fell almost 50% from its April highs of over $4.00.

On July 7 Deutsche Bank initiated JDSU with a hold rating. The brokerage firm noted that it ptical portfolio will continue to produce very solid results, but comparing annual results to prior would be difficult. Deutsche Bank also noted that JDSU was relatively fairly valued, and that was when the shares closed at $2.31.

You would say that JDSU needs to be part of a much larger company in a world where the few remaining telecoms command such a large percentage of the total revenue pie. The real problem there is that JDSU has been riddled with enough problems in the past that an acquirer may not want to endure the effort. JDSU's market cap is now under $4 Billion as well, which means it has no equity value to go make any sizeable acquisitions and it is unclear if shareholders would try to keep the brakes on if they tried. The other issue to consider is that JDSU is almost unacquireable for a predator because a cash buyout would wipe out so many shareholders who have suffered through the decline that JDSU is known for and a stock buyout would be highly dependent on the long-term growth prospects of the buyer.

While the street expects a close to breakeven EPS report for the June quarter and a $0.01 (rounded up) EPS report for next quarter, this company is expected to only report a $0.04 EPS report for Fiscal year-end June 2007. The best estimate out there is for fiscal 2007 to be as high as $0.06, which still gives it a forward P/E of 35. Revenues are expected around $1.3 Billion for fiscal 2007, so it trades at 2.67 times forward revenues.


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