- FBR reiterates Outperform rating and $17 price target on shares of Arris (NASDAQ:ARRS), and views the stock's weakness Monday as a compelling buying opportunity for equity investors. First, they see few major risks related to the key fundamental question over the use of proceeds in any likely M&A scenario, and expect much of the overhang from the convert to lift as Arris' strategy takes shape. Second, they believe the offering signals management's confidence in the company's outlook, reinforcing their own checks that reveal improving demand and solid execution by the company. After perhaps a bit more downside in the very near term as convert buyers hedge positions, firm sees a compelling risk/reward for the shares, with as much as 50% upside over the next few quarters.
Firm views the mixture of share price pressure, increased volume, and a temporary "buyers' strike" due to the convert offering as a chance for investors with risk appetite to accumulate Arris shares at a significant discount to fundamental value. While it is difficult to call a bottom on this volatile name, they think the risk/reward at this point strongly favors long positions--and would be aggressive buyers while this window remains open.
Cash- adjusted ($2/share and a $0.06 EPS impact), the shares trade at 14x 2007E EPS. FBR thinks they should trade at a premium to the peer mean of 19x; $17 price target is based on 20x 2007E EPS plus $3/ share in cash by YE07.
Notablecalls: Would be looking for a bounce. The ideal trade would me to catch ARRS around $11 but I'm not sure it will get there.
Firm views the mixture of share price pressure, increased volume, and a temporary "buyers' strike" due to the convert offering as a chance for investors with risk appetite to accumulate Arris shares at a significant discount to fundamental value. While it is difficult to call a bottom on this volatile name, they think the risk/reward at this point strongly favors long positions--and would be aggressive buyers while this window remains open.
Cash- adjusted ($2/share and a $0.06 EPS impact), the shares trade at 14x 2007E EPS. FBR thinks they should trade at a premium to the peer mean of 19x; $17 price target is based on 20x 2007E EPS plus $3/ share in cash by YE07.
Notablecalls: Would be looking for a bounce. The ideal trade would me to catch ARRS around $11 but I'm not sure it will get there.
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