ADC Telecommunications: Easing the transition to the hyperband

Posted Feb 29th 2008 4:29PM by Joseph Lazzaro
Filed under: Stocks to Buy, Technology

Some investors / readers may not be aware that the Internet -- critical as it is today for commercial activities and the flow of information -- was not designed to handle the volume and complexity of today's web tasks. Moreover, the appearance of Internet bottlenecks and ensuing upgrades to broadband and, eventually, to hyperband, has created an impressive business opportunity for ADC Telecommunications.

ADC Telecommunications (Nasdaq: ADCT) is a global supplier of broadband network equipment, software, and systems integration services that enable communications service providers to deliver highspeed Internet, data, video, and voice services.

In F2008 analysts expect strong fiber connectivity sales, including substantial work from telecommunications giant AT&T Inc. (NYSE: T). Further, ADCT's product mix should improve, with high top-line connectivity products offsetting some sector-wide pricing pressure.

Meanwhile, operating expenses are reasonable. In sum, analysts believe ADCT is well-positioned to benefit from the near-universal transition to broadband connectivity, especially for FTTP and wireless products. The Reuters FY 2008/FY 2009 EPS consensus estimates for ADCT are $1.19 to $1.31.

The risks? A U.S. recession would hurt ADCT's results, particularly if broadband build-outs/improvements are delayed.

The First Call mean rating for KSS is: Buy [21 firms]. Mean 2008 target: $21 [high: $24, low: $18].

Stock Analysis: ADC Telecommunications is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than 2 years should be rewarded from ADCT's shares. Sell / Stop Loss if you were to purchase shares in this company: $7.

Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.

Tags: ADC Telecommunications, ADCT, broadband, hyperband, Internet, wireless