Friday, January 4, 2008

Turnaround and analyst price projections/outlook for UT

After the first week of trading in 2008, UT has gained 1 cent as the overall markets have performed very poorly. Its too early to comment on relative strength or any fundamental or technical changes but its nice to see anyway. There was an article about UT being a turnaround play that hasn't posted by Invest2bfree (nice screen name but for UT, its almost like being captured the last few years but thats another topic for discussion).

Its a nice recap similar to the ones posted here and on the message boards. As Invest mentioned, its a fairly balanced account. This is the dilema that shareholder and analysts faces with UT. Analysts can only go with certain valuation metrics which unfortunately do not allow them to give multiple price targets. At most they can tweak their numbers to probable expenditures a few quarters out and revenues/margins from the signed contracts. However, UT is not Mircosoft or a Cisco where the revenue base is fairly consistent.
Yes, the numbers for 2008 are probably going to fall close to what some analysts are projecting. Heavier losses in Q1-Q2 and minor losses in Q3 and maybe a profit in Q4. The major unknown is the bookings and how the iptv/broadband markets open up specifically for UTs core markets. Wins in India, China, Brazil, and Taiwan just gives me confidence that the market is openning up AND UTs pricing model/technology is competitive. From all macro articles about broadband/iptv/emerging markets, I am confident those trends will be positive for UT. The uncertainty is the competitive landscape (which I just mentioned with the wins is reassuring to me).
Thats why its important to keep up with news for UT. Just looking at the profit/loss for the next 12 months doesn't do the potential and assets any justice. It takes more than 6 months to a year to start recognizing revenue from new contracts and trials itself are up to 1 to 2 years long! Thats in essence why I mention that shareholders have paid a lot to reach this position and why I felt the added losses in 2007 was actually a sign the company felt the markets openning up. Losses in 2006-2007 are not really wasted because of this.
In summary, analysts don't really have a clear picture what earnings/revs for 2009, 2010, and beyond. They slap their 5% growth projectipns and throw a couple of margin estimates and come up with valuations. That can work for other companies but definitely not UT. I don't fault them based on the history, management, and lack of visibility. But they can be WAY off as back in 2004 when UT just bought the PCD and estimates for company earnings were in the $2-2.5 range.
Blackmore mentioned that the "right" way to look at the progress is via bookings (hence they have started giving book to bill). Right now, its been mostly PCD growth but that is starting to change. Obviously, the street will look at a shorter more managable time horizon (as with the markets today dropping almost 4%).
So, take comments that the stock is dead money with a grain of salt. Right now dead money is better than collapsing money and the stock can turn around big when things get resolved. Thats why it would be nice to have some price target projections if certain things happen. There are tons of analysts that will do that for a company like Apple (for each iphone market they penetrate, etc etc). Since most analysts don't care anymore about UT, I guess most investors like you and me will just have to do their own research and come up with those scenarios for UT :-) Imagine that...

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