Auriga Initiates Coverage on ADC Telecommunications (ADCR) With a Hold; We Prefer the Bonds
ADCT Hot Sheet
Rating Summary:0 Buy, 4 Hold, 1 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 16 | Down: 7 | New: 23
Auriga initiates coverage on ADC Telecommunications (Nasdaq: ADCT) with a Hold. Price target $8.
Auriga analyst says, "This year will likely mark a bottom in Bell spending, in our view. We look for signs of a pickup in 2H09, albeit against a murky backdrop. With the shares of ADC Telecom (ADCT) up by more than 100% since March, we believe the current stock price fully discounts such a recovery. Meanwhile, given what we consider the great franchise value of ADC and its propensity to cut costs, we see minimal risk of default on the company’s debt. ADC has $650mn in debt and little equity. Relative to the stock, the company’s bonds recently traded at $0.66 on the dollar and currently yield 11%, which we view as a far more attractive investment.
"Pace of Capex Recovery Uncertain: ADC’s two largest customers – Verizon (NYSE: VZ) and AT&T (NYSE: T) – have guided to capex down 10%-15% y-y in 2009. They also appear to have underspent their budgets in 1H09. While we (and the Street) expect a snapback in spending in 2H09, such a trend could be delayed or muted should the economy fail to stabilize. ADC’s revenues and earnings are heavily tied to capex spending."
To see more analyst ratings on ADCT Click Here.
ADC Telecommunications, Inc. (ADC) is a provider of broadband communications network infrastructure products and related services.
Auriga analyst says, "This year will likely mark a bottom in Bell spending, in our view. We look for signs of a pickup in 2H09, albeit against a murky backdrop. With the shares of ADC Telecom (ADCT) up by more than 100% since March, we believe the current stock price fully discounts such a recovery. Meanwhile, given what we consider the great franchise value of ADC and its propensity to cut costs, we see minimal risk of default on the company’s debt. ADC has $650mn in debt and little equity. Relative to the stock, the company’s bonds recently traded at $0.66 on the dollar and currently yield 11%, which we view as a far more attractive investment.
"Pace of Capex Recovery Uncertain: ADC’s two largest customers – Verizon (NYSE: VZ) and AT&T (NYSE: T) – have guided to capex down 10%-15% y-y in 2009. They also appear to have underspent their budgets in 1H09. While we (and the Street) expect a snapback in spending in 2H09, such a trend could be delayed or muted should the economy fail to stabilize. ADC’s revenues and earnings are heavily tied to capex spending."
To see more analyst ratings on ADCT Click Here.
ADC Telecommunications, Inc. (ADC) is a provider of broadband communications network infrastructure products and related services.
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