Hold Telecom Supplier Ciena Corp.
Ciena Corp. (CIEN) reported strong margins in the first half of FY 2008, and looks poised to maintain this throughout the year. Its FlexSelect products allow carriers to transition networks to carrier grade Ethernet, one of the fastest-growing technologies in telecommunications.
In order to expand its Ethernet offering from infrastructure throughout the network, including metro and customer premise locations, Ciena completed the acquisition of World Wide Packets. We therefore maintain a Hold rating on CIEN shares and lower our six-month price target to $31.50, given risks to the U.S. economy. We believe that Ciena will be successful in leveraging its new product portfolio.
Ciena is currently trading at 22.7x estimated 2008 EPS, in-line with the industry median. However, with economic uncertainty in 2008, telecom carriers could potentially curtail some of their spending in the second half of the year. We set a six-month price target to $31.50 which is based on P/E multiple of 21.6x our 2008 EPS estimate of $1.46, roughly inline with the industry mean and median.
Profits for Anadys A-Ways Off
Anadys Pharmaceuticals, Inc. (ANDS) has undertaken a major restructuring program and will focus on the development of only two compounds, ANA598 for the treatment of hepatitis C and ANA773 for cancer. We do not see the company becoming profitable in the near future. We are, therefore, maintaining our Hold rating.
Based on encouraging preclinical results for ANA598, the company is focusing its resources on speeding up the clinical program of ANA598 into phase II trials by 2009. We had previously expected a product launch to occur by 2009; but now the latest the company can launch a product will be in the 2011/2012 period. This represents a substantial delay from our earlier forecasts.
With several competitive products either in the market or in clinical development, we remain skeptical about the commercial success of Anadys products. We believe the company will continue to incur losses for the next several years. Current drug development programs indicate that 2008 could be the first year in which ANDS could present phase I data on either of its candidates. Until then, the company will need to rely on the cash balance to fund its operations till 2009.
We would like to see more visibility on the company's development programs before we recommend the shares. It is currently very difficult to value the stock, given the low revenue stream and the negative EPS in the 2008-2011 period. We assign the stock a target price of $3.50 with a market cap of $101 million.
Varun Parwal contributed to this report.
Coca-Cola Outlook Going Flat
The North American market for carbonated soft drinks (CSD) is maturing, and Coca-Cola Enterprises, Inc. (CCE) has little exposure to faster growing non-carbonated beverages. The strategic restructuring program emphasizing the non-carbonated beverages and low-calorie sodas should mitigate the impact of higher input costs. However, the weak economic environment in North America and subsequent softer-than-expected volume are concerning.
A strategic agreement with The Coca-Cola Company (KO) allows continual rollout of innovative products that stimulate incremental revenues and the company's delivery capability with a strong go-to-market model drive growth at Coca-Cola Enterprises.
The overall prospects for Coca-Cola Enterprises are not expected to improve significantly. The company continues to face rising costs of aluminum cans and high fructose corn syrup, a trend that is expected to persist throughout 2008. While price increases undertaken to offset the rising commodity costs will improve revenue per case, volumes will remain under pressure.
With a strong relationship with Coca-Cola and a financially leveraged balance sheet, Coca-Cola Enterprises stock has traded in a P/E multiple range of 13 to 20 over the last five years.
