We downgrade our recommendation on
JDS Uniphase Corp.
) to Neural based on the company's high level of current
valuation and the cyclical nature of the optical control
Why the Downgrade?
The stock price of JDS Uniphase has moved up nearly 80.5% in
the last year, significantly outpacing the S&P 500 return of
just 22.6% over the same period. JDS Uniphase is currently
trading at the high end of its 52-week price range. With respect
to several valuation metrics, the stock is also trading at
significantly higher multiples compared to the S&P 500. We
believe the company is currently fairly valued and the stock
price will not provide above market gains any time soon. JDS
Uniphase currently has a Zacks Rank #3 (Hold).
Risk/Reward Virtually Balanced
The optical component industry has not fully recovered from
the global economic downturn. Macroeconomic fluctuations may
significantly affect the future prospects of JDS Uniphase.
Optical component industry is highly cyclical in nature and is
characterized by extreme price volatility. A weaker-than-expected
market recovery will make the situation worse. Additionally,
mergers among telecom carriers and equipment manufacturers may
result in lower orders.
The marketfor optical networking and test measurement is
emerging rapidly in terms of technological innovation and demand.
JDS Uniphase's product sales depend to a large extent on the
market dynamics of the metropolitan and enterprise marketsas well
as on the long-haul fiber component market.
On the other hand, the recentacquisition of U.K.-based Arieso
will enhance JDS Uniphase's mobility software portfolio. Arieso's
product suites address radio access network (RAN) monitoring and
optimization to deliver effective network design and performance.
The RAN optimization market size is expected to grow to $1
billion by 2015.
Most notably, Arieso has a solid list of clientele that
includes several global telecom giants, such as
Vodafone Group plc.
). JDS Uniphase paid $85 million in cash for this acquisition. We
believe this deal will be incrementally positive for the company
from the fourth quarter of fiscal 2013.
JDS UNIPHASE CP (JDSU): Free Stock Analysis
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