From: Linda (firstname.lastname@example.org)
Date: Sun Sep 17 2000 - 06:19:23 PDT
Mark Day wrote:
<<So it's OK that Nortel has a multiple twice that of Lucent's, but
somehow suspicious that Cisco has a multiple twice that of Nortel's? I
don't follow the reasoning here.>>
Stock performance is dependent on more than the historic company
performance, right? KIDE is a great example. Among other things,
uncertainty, anticipated future growth, competition, investor
sentiment etc. all factor into the valuation premium given to a stock.
Nortel's (NT) market cap is 216B; Lucent's (LU) is 126B. Although
NT's last quarter revenue was 7.8B and LU's was 8.7B, compared to the
same quarter last year NT's revenues increased 48% whereas LU's
increased just 20%. I believe LU also warned for the next two quarters,
and they have a history of poor execution:
So despite similar revenues for the past quarter, NT's premium over
LU is probably justified.
Cisco (CSCO) is valued more highly than NT because it has higher margins
and its business model may afford more scalability. Looking at the
latest quarter, CSCO had revenues of 5.2B, an increase of 61% over the
same quarter last year, with gross margins of 64% and operating profit
margin of 26%. This compares to NT's gross margins of 38% and operating
profit margin of around 6% (excluding one time gains/charges).
What concerns many is that CSCO's growth may be slowing. Gross margins
and operating margins were down slightly from last year same quarter.
Accounts receivable and inventory levels were slightly more than
some had expected. This may well be temporary, but because CSCO (and NT)
are priced to perfection as growth stocks, any true slowing in growth
rate could affect the stock performance quite significantly. And the
competitive field may be changing, Juniper(JNPR) being a good example
of a significant new competitor for CSCO. By some accounts, JNPR now
has around 25% market share of the router market.
This week someone sent me the article below on JNPR (sorry, no link.)
What I found refreshing was that the CEO of JNPR was advising
NOT to sell his competitor's stock.
Juniper Networks CEO Advises Don't Sell Cisco Stock
By ANNE BRADY
OF DOW JONES NEWSWIRES
(This item was originally published late Monday.)
SCOTTSDALE, Ariz. (Dow Jones) -- The chief executive of Juniper Networks
Inc. (JNPR) said Tuesday that the market for Internet routers is growing
so fast that he expects both his company, No. 2 in the market, and the
leader, Cisco Systems Inc. (CSCO), to enjoy continued growth and
"Cisco is the competition. I'll give you this stock advice: This is not
one of the stocks I'm selling, personally," said Scott Kriens, speaking
with potential investors at Dain Rauscher Wessels' Technology Conference
2000 at the Scottsdale Princess resort in Scottsdale, Ariz. "There's
plenty of growth in the market for both companies. The market growth is
faster than both companies' (growth). ... Cisco will certainly be an
ally in making sure the contest stays between the two of us."
Speaking with Dow Jones Newswires after the presentation, Kriens said
that although some fund managers may evaluate his company based on
growth in market share, which has been rising relative to Cisco, he is
focused on revenue growth.
"Our focus is not on market share. Our targets are for absolute dollars,
not share percentages," Kriens said.
He said total Internet infrastructure market, expected to reach $2
billion by the end of 2000 and as much as $15 billion by 2003, are
difficult to project. "It's basically guesswork" attempting to estimate
the rapidly growing space, he said.
Dain Rauscher Wessels' analyst Sanjiv Wadwanl has a "strong buy
aggressive" rating on Juniper, with a price target of $250.
Juniper shares closed 4 p.m. trading Tuesday up 3.7%, or $6.69, at
Other market growth estimates made by Dain Rauscher Wessels analysts at
Tuesday's conference included a $100 billion application service
provider via Internet by 2004 and a $20 billion Internet telephony
market by the same year.
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