It's been an extended stretch of misery for companies that
supply equipment to wireless and wireline telecom companies. The
massive network buildout of the 1990s led to more tepid capital
spending in the last decade. But we may be entering a robust new
phase of industry spending, according to telco equipment supplier
Tellabs (Nasdaq: TLAB)
. The company this morning posted first-quarter results ahead of
analyst forecasts, and also issued impressive second-quarter
guidance. That helped push shares up nearly +10% in Tuesday
trading. (In late February we looked at Tellabs' prospects here.)
Shares of Tellabs have risen more than +50% since the start of the
year, but it's not too late to join the party. That's because the
renaissance in telecom equipment spending is just getting underway,
which should yield steady sales gains for Tellabs in the years to
come. And thanks to robust cost cuts over the last two years,
profits may grow at a very fast clip. If you exclude the company's
hefty $1.1 billion cash position, the Tellabs is valued at just
$2.4 billion, or roughly 10 times the current run rate of annual
cash flow. And as noted above, that cash flow looks set to rise at
a solid clip over the next few years.
Tellabs' key rival
Adtran (Nasdaq: ADTN)
posted similarly robust results earlier this month, echoing the
bright industry outlook. Could investors be in for a similar treat
ADC Telecom (Nasdaq: ADCT)
weighs in late next week? Options investors think so, as call
buying on ADC Telecom has ticked up recently.
"Thanks for nothing." That seems to be the message investors are
Western Union's (
CEO Christina Gold. Her retirement announcement sent shares up
nearly 9% in Tuesday trading. Western Union's quarterly results
were uninspiring, but the money transfer firm should see improving
results if the global economy continues to get back on its feet.
And shares, at about 13 times next year's projected profits, are
reasonably priced for a company with a global footprint and strong
brand name. To move shares higher from here, new management will
need to articulate growth plans that help boost sales.
Lastly, chip stocks continue to move back into vogue on the heels
of stellar results from
Cirrus Logic (Nasdaq: CRUS)
Cavium Networks (Nasdaq: CAVM)
. Those stocks are up +15%, and +9%, respectively, in Tuesday
morning trading. We recently highlighted
Applied Materials (Nasdaq: AMAT)
as an undervalued play on the industry's renewed growth prospects.
Click here to see the story.
-- David Sterman
Disclosure: David Sterman does not own shares of any security
mentioned in this article.
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