ADC Telecommunications (ADCT): Price defines bullish 'flag' pattern

Posted Jun 10th 2008 3:10PM by Larry Schutts
Filed under: Earnings Reports, Analyst Upgrades and Downgrades, Ciena Corp (CIEN), Morgan Stanley (MS), Verizon Communications (VZ), Technical Analysis, Stocks to Buy

ADC Telecommunications (NASDAQ: ADCT) provides infrastructure equipment used by wireline, wireless, cable, broadcast and enterprise networks. Its systems connect high-speed Internet, data, video and voice services to residential, business and mobile subscribers. The firm also provides network management software and integration services. Ciena (NASDAQ: CIEN), Morgan Stanley (NYSE: MS) and Verizon Communications (NYSE: VZ) are on the company's customer list.

The firm surprised the Street last week, when it reported Q2 EPS of 39 cents and revenues of $403.4 million. Analysts had been looking for 30 cents and $384.8 million. Management also guided Q3 revenues to about $403.4 million ($395.70 million consensus), FY08 EPS to $1.25-$1.33 ($1.21 consensus) and FY08 revenues to $1.52-$1.54 billion ($1.5B consensus). Friedman Billings, Robert W. Baird, UBS and Deutsche Securities subsequently reiterated "buy" ratings on the shares. Lehman Brothers reiterated its "equal weight". All five firms boosted their price targets to the $18.50-$20.00 range.

The stock popped on the news and then moved into a bullish "flag" consolidation pattern. Prices frequently exit flags moving in the same direction they were traveling on entry. In this case, that would be to the upside.

Brokers recommend the issue with seven "strong buys", five "buys" and six "holds". The stock's Price to Sales ratio (1.49), Price to Book ratio (2.06), Price to Free Cash Flow ratio (22.67) and Sales Growth rate (19.17%) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 89% of the outstanding shares. The stock is one of those used to calculate the S&P 400 MidCap Index. Over the past 52 weeks, it has traded between $11.59 and $21.06. A stop-loss of $14.50 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.

Tags: ADC Telecommunications, ADCT, AdcTelecommunications, flag, fundamental analysis, FundamentalAnalysis, momentum, technical analysis, TechnicalAnalysis