tors' Soapbox AM | FRIDAY, SEPTEMBER 23, 2011 Two Top Picks in Communications Equipment Adtran and Riverbed Technology both have solid businesses.
We are updating our [communications-equipment] model portfolio and shedding light on our near-term (one-month) stock preferences.
There are two important procedural changes since the last update four months ago. We now have 12 names under coverage, compared with six, and we are using a thousand-point portfolio weighting system versus a hundred-point system previously.
Adtran (ticker: ADTN) and Riverbed Technology (RVBD) are our top picks. Adtran has the highest portfolio weighting at 105 points, compared to 83 for an equal-weighted name.
We were impressed with the high levels of activity around the broadband access and wireless backhaul opportunities when we visited Adtran headquarters in August. Our research since that time suggests a solid business tone with a nice linear progression throughout third-quarter 2011. Adtran offers 35% upside to our $40 price target, and trades 5% below our bear-case valuation of $31. The bear-case valuation is based on only $2.05 in 2012 earnings per share versus our and consensus estimates each at $2.36.
We introduce Riverbed into our model portfolio at 101 points. Despite a host of potential concerns around macro/enterprise risk and public sector and European exposure, our research suggests Riverbed is more or less on track for September. The company's leadership in wide-area network (WAN) optimization, and entry into virtual application control, position it as a key emerging strategic vendor for enterprises moving to cloud architectures. We see roughly 50% upside to our $33 price target and only 8% downside to our bear-case valuation of $20 from current levels.
Juniper Networks (JNPR) is the most heavily weighted Neutral-rated stock due to valuation, and despite fundamental headwinds. We increase Juniper's weighting by 20% (to 90 points) relative to the last update. Since that time, the stock has dropped 49%, compared to a 9% decline in the Nasdaq composite, reflecting the macro slowdown and company-specific risks related to multiple simultaneous key product launches. While we tend to agree with Cisco Systems (CSCO) that Juniper looks particularly vulnerable over the next 12 months, we think this is largely reflected in the share price. The stock trades slightly below our bear-case valuation of $20, which is based on just $1.30 in 2012 earnings per share compared to our and consensus estimates at $1.56.
We underweight Research in Motion (RIMM), Infinera (INFN) and F5 Networks (FFIV). We consider Research in Motion (at 50 points) to have the weakest fundamentals in the space as Apple (AAPL) and [ Google (GOOG)] Android expand and [ Microsoft (MSFT)] Windows grows into a meaningful threat.
Infinera (at 60 points) shares were strong into its announcement of 100G dense wavelength division multiplexing, but the new product won't move the revenue needle until the second half of 2012. We think the stock will likely continue to underperform, as it has done since the announcement was made at the analyst day last week.
F5 Networks (at 70 points) has greater Public Sector and European exposure than Riverbed. Our research suggests F5 may be having more difficulty closing the September quarter and may be offering greater-than-normal seasonal discounts in an effort to stimulate the order rate.
[We rate Adtran and Riverbed at Buy; we rate Juniper, Research in Motion, Infinera and F5 at Neutral.]
RVBD and FFIV are screaming buys right here , if u have a time horizon of 1 year you will be HEAVILY rewarded , risk reward on these stocks in my opinion are excellent , riverbed would be down 4 up 20 , and F5 would be down 8 up up 40 +. GOOD LUCK