EXFO Electro-Optical Engineering (NASDAQ: EXFO) specializes
in the design and manufacture of equipment used by telecommunications carriers, cable television companies and public utilities operators to test and monitor their networks. It also provides light-based systems used in medical device and opto-electronics assemblies, as well as fluorescence microscopy and electrophysiology instruments used in the life sciences sector. Customers include AT&T (NYSE: T) and Nortel Networks (NYSE: NT). Agilent Technologies (NYSE: A) is a major competitor.
The company pleased investors last week, when it reported fiscal Q2 EPS of six cents and revenues of $43.3 million. Analysts had been expecting two cents and $42.3 million. Management also guided Q3 EPS to between four and seven cents (five cent consensus) and Q3 revenues to between $45 million and $48 million ($46.93 million consensus). Further, the firm announced a deal to acquire Internet Protocol applications tester Brix Networks for $28.5 million in cash. RBC Capital Markets and Roth Capital subsequently reiterated "buy" ratings on the stock and declared price targets in the $7-$8 range
The issue
popped on the news and has since been consolidating the gain in a bullish "flag" pattern. Prices frequently exit flags moving in the same direction they were traveling on entry. In this case, that would be to the upside.
Altogether, brokers now recommend the shares with nine "buys" and one "hold". Analysts see a 28% average annual growth rate, through the next five years. The EXFO Price to Sales ratio (2.53), Price to Book ratio (1.50), Price to Cash Flow ratio (9.01), EPS Growth rate (50.00%), Net Profit Margin (24.40%), Return on Assets (15.16%) and Return on Investment (16.48%) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 17% of the outstanding shares. Over the past 52 weeks, the stock has traded between $3.75 and $7.83. A stop-loss of $5.00 looks good here.
Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com. He does not hold positions in any of the stocks mentioned above.
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