We maintain our Hold recommendation and the same valuation target Sycamore Networks, Inc. (SCMR), a leader in intelligent bandwidth solutions for fixed and mobile networks.

We believe future demand for agile bandwidth management solutions, across a variety broadband network infrastructures, will improve as telecom carriers seek to deliver flexible bandwidth services, simplify end-to-end provisioning, and create a resilient and scalable optical foundation for value-added voice, video, and data services.

This is expected to facilitate the company's return to more profitable conditions in future reporting periods. On the other hand, the management indicated that the company's top-line may be lumpy over the near-term due to loss of orders from a major customer. We consider Sycamore as more favorable over a longer investment time horizon.

Sycamore is currently trading at 68.8x our fiscal 2009 earnings estimate. This is at a premium to both the S&P 500 and to the peer group (optical telecom equipment manufacturers) average. We believe Sycamore's valuation is based on the future revenue potential relating to new network deployments and expectations for near-term improvement in earnings.

According to our view, revenue is likely to be volatile throughout Fiscal 2009 and expenditures are expected to increase due to new product introductions and integration related costs associated with the acquired entity. Our $4.50 price target is based on a forward EV/S multiple of 3.8x our fiscal 2009 sales estimate.