Here’s the write up on three of our telecom equipment longs from the newly rewritten…
Here’s the write up on three of our telecom equipment longs from the newly rewritten, “50 Stocks for the App Revolution” report that you guys get full access to for free at the link at the bottom of this post.
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RVBD – Riverbed Technology, Inc.
Summary
Riverbed’s technology helps to improve the performance of applications run over the web. As apps become more and more prevalent in our day to day life, how quickly and efficiently they run will be an ever important concern. Riverbed’s wares will be in high demand to address this need.
Balance Sheet
Cash and Cash Equivalents: 197M
Short Term Investments: 275M
Long term Investments: 93 M
Total Cash: 565M
Total Debt: 0
Net Cash: 565M
Outstanding Shares: 153M
Net Cash / Share: 3.69
Share Price: 33
Enterprise Value / Share: 29.31
Total Market Cap: 4.97B
Enterprise Value: 4.4B
2011 Sales Growth Est: 22.80%
2011 Earnings Est.:. 1.17
Enterprise Value Multiple: 25 Times Forward Earnings
Dividend & Yield: N/A
With the market having bounced off the recession trough and corporate cash at record levels, the one metric that hasn’t come back is headcount. And why would it? The App Revolution is enabling corporations to endow its employs with tools that are taking productivity to all time highs. Tasks that just a few years ago consumed much of the working day are now being done from the remaining employee’s iPhones. Sales people can better visualize data and gather information. Field technicians have real-time, remote-access to complex systems for a fraction of the cost. And when you add up the cost savings from the reduction in labor force, boardrooms across the Fortune 500 are choosing the better equip their best employees instead of simply hiring more mediocre ones. Comparing the flexibility that these new enterprise level apps give a company, they want their networks to be running at full speed, and that’s the job of Riverbed.
Instead of increasing existing server capacity, companies can integrate Riverbed into their networks, sometimes with less than a few hours of disruption. When you consider the value proposition of Riverbed’s hardware/software combination, and that it’s a cap-ex that can be written off over time, the potential market for RVBD looks huge.
Wall Street hasn’t fully embraced Riverbed’s story yet. The company’s market cap is still a reasonable $5 B despite tripling in the last 5 years and you better believe that larger rivals like Juniper and Cisco have considered a takeover of this name. Riverbed is highly leveraged, and it’s high 20s sales growth rate should persist for the next decade, meaning that its bottom line about to seriously swell.
Revolution Investing rating: 9/10
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CSCO – Cisco Systems, Inc.
Summary
Cisco sells all kinds of networking products to help connect computers to the internet. It also sells security products, storage systems and those giant routers that rout data from device to device. The App Revolution is only going to increase the need for data to be transferred, storage systems to house data and the proper security within the networks to protect against fraud and viruses.
Balance Sheet
Cash and Cash Equivalents: 4.5 B 6.6 B
Short Term Investments: 35 B 37 B
Long term Investments: –0
Total Cash: 43.6B
Total Debt: 16B
Net Cash: 27.6 B
Outstanding Shares: 5.5 B
Net Cash / Share: 5.0
Share Price: 15.2
Enterprise Value / Share: 10.20
Total Market Cap: 83.49 B
Enterprise Value: 65.89 B
2012 Sales Growth: 5.9%
2012 Earnings Estimate: 1.73
Enterprise Value Multiple: 6 Times Forward Earnings
Dividend & Yield: N/A 0.24 (1.6%)
Its not a stretch to say that Cisco quite literally manufactures the Internet. Its routers, switches and security systems are the backbone of the Web. Any growth in apps will necessarily benefit CSCO, it’s so big that its product lines touch every area of possible expansion. Cisco’s routers and switches are the gold standard of the networking industry and its purchase of Linksys in 2003 pushed the company into the psyche of consumers. CEO John Chambers has grown the company both organically and by acquisition over the years, taking Cisco from under from under $1 billion in revenue to more than $40 billion today.
The company seems to have perfected its cash machine, not that Wall Street or the Market pays much mind. With $27 billion in cash and trading at around 8x forward earnings, Cisco is priced like a stagnant conglomerate, while it’s the company that should be most closely associated with the scramble to build out networks across the board.
Revolution Investing rating: 9/10
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CIEN – Ciena Corporation
Summary
Ciena Corporation provides networking equipment, that support the transport of data traffic over the internet.
Balance Sheet
Cash and Cash Equivalents: 626M
Short Term Investments: -0
Long term Investments: -0
Total Cash: 626 M
Total Debt: 1.4 B
Net Cash: -774M
Outstanding Shares: 96 M
Net Cash / Share: -20
Share Price: 17.26
Enterprise Value / Share: 37.26
Total Market Cap: 1.65 B
Enterprise Value: 2.4 B
2012 Sales Growth: 15%
2012 Earnings Estimate: 0.95
Enterprise Value Multiple: 39 Times Forward Earnings
Dividend & Yield: N/A
Ciena is one of the best high-risk/high reward stocks for the App Revolution. Its growth will be from the arms race going on between domestic telecom operators, as they race to say that their network is the one that can handle the most adorable YouTube kitten videos. The Mr. Me Too phenomenon (“Oh you have a 4G network? Me too!”) has legs and really hasn’t even gotten underway. Look for spending from telecoms like Verizon to spike as they try to lock up lucrative smartphone customers.
Top-line growth will hit $1.7 billion in 2011 revenue. They’ve had some some hiccups with their purchase of Nortel’s optical networks, and have eaten up the cash on their balance sheets. After being in the green last year, Ciena has had two consecutive quarters with wider than expected losses. But it remains one of the purest plays on the necessary expansion of network capacity. With a 3-5 year time horizon and a stomach for lumpy earnings, Ciena can be a winner for those not faint of heart. If you panic and re-evaluate your stocks on a daily basis, this one probably isn’t for you.
Revolution Investing rating: 7/10
http://tradingwithcody.com/ebooks/50-stocks-for-the-app-revolution-updated-june-2011/
