Tuesday, June 27, 2006

Calls of Note Part 2

- Merrill Lynch notes that with several flat panel display (FPD) manufacturers slowing production rates and pushing out some capacity spending, they expect a drop in FPD equipment sales in the next several quarters. Firm attempts to quantify the risk to Photon Dynamics (NASDAQ:PHTN) with estimate reductions. With the stock near historical trough valuations, they maintain Neutral rating, recognizing that much of this news is already in the stock. GAAP FY06E (Sept) EPS goes to $0.60 from $0.80 and FY07E to $0.62 from $0.92.

PHTN is trading at 1.6x tangible book value and 0.8x Enterprise Value/ trailing Sales. The average historical trough has been 1.7x tangible book with the lowest point about 1.0x. The EV/Sales trough has been around 1.6x on average and about 1.0x at the lowest point. The low points typically occurred when PHTN was losing money significantly in downturns. Thus, Merrill believes the current valuation already factors in the slowdown.

Notablecalls: Not actionable but good to know category.

- JP Morgan comments on Corel (NASDAQ:CREL) saying concerns over weakness at its largest distribution partner, Dell, and sluggishness by competitor Adobe have weighed on the stock. Firm likes the long-term strategy and waits to see results to determine if macro issues are impacting Corel.

Some comments the firm has gotten back from the channel indicate that Corel has continued to hold its market share this past quarter. Believes this indicates that results should ebb or flow with the overall macro results are for the quarter. The stock is trading at 8.1x FY2006E earnings which is 58% below its peers. The NOL's for Corel are worth roughly $109M. Maintains Neutral.

Notablecalls: Not actionable but good to know category.

- Piper Jaffray continues to be positive on F5 Networks (NASDAQ:FFIV) following recent round of channel checks and conversations with industry contacts. Firm believes the momentum in the application traffic management space remains strong and they are incrementally more comfortable with their June quarter revenue and EPS estimates. Believes a moderate recovery in the government business, a strong ramp from WANJet (Swan Labs acquisition), and relatively solid demand in North America and Europe will benefit F5 in the current quarter. Reiterates Outperform rating and $66 price target on FFIV shares.

Notablecalls: Not actionable but good to know category.

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