ADC Telecom Earnings Preview: Third Quarter 2009

ADC Telecom [[ADCT]] is scheduled to report their third quarter 2009 results after the market closes on Tuesday, September 1st. Based on our analysis, we at EarningsPreviews.com are expecting ADCT to report better than expected results that exceed Wall Street’s consensus expectations.

 

Analyst Expectations

We are forecasting revenues of $280.7 million and EPS of $.14. This would represent a 28% decline in revenues from last year’s $390.2 million in the same period. The current analyst consensus estimates calls for revenues of $281.4 million and EPS of $.12. On August 11, the company provided updated third quarter revenue guidance of approximately $280 million and $.11 – $.16 non-GAAP EPS.

 

ADC Telecom’s shares have jumped 31% since announcing on August 11th that they would exceed previously provided third quarter guidance numbers. However, Wall Street consensus is still at the low end of the company’s updated EPS range. We view the company’s improving rate of decline to be very positive and a likely indicator of broader recovery in capital spending.

 

Investors have flocked to ADC Telecom in 2009 as the stock is a great play on both the mobile internet revolution as well as a recovery in China. ADC has been benefiting from the Chinese governments aggressive stimulus plan as revenues in China doubled last quarter.

 

Stock Performance

Since the beginning of 2009, ADC Telecom’s shares have gained an amazing 65% and have significantly outperformed the 9% gain in the Dow Jones industrial average. However last year, ADCT’s stock fell nearly 65% and badly underperformed the 34% drop in the Dow Jones industrial average.

 

Valuation

Shares are now trading at 18x consensus 2010 EPS estimates. This is inline with the relative valuations of their peer group. Despite the stock’s big rally this year, the company still trades at a reasonable valuation level. With future growth expected in the mobile internet sector as well as the company’s strong exposure to the key China market, we would continue to rate ADCT as a buy. 

 

Recommendation: Buy with an $11 price target.

 

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