In the wake of Ascend's roughly 10% skid, several pros nervously said they believed the hot networking stock would find a way to battle back. But a rally faces stiff opposition. For a change, the bears seem to have a little ammunition.
Monday's withering assault stemmed from a terse 8-K filing that Ascend made with the
Securities and Exchange Commission
. The filing basically said that July was not looking like such a great month as far as earnings went. As the stock tumbled on the earnings fears, influential analyst Al Tobia at
piled on, cutting the stock from a buy to a hold. By the market's close, the stock had retreated 4 13 /16 to 44 11/16 on the astounding volume of 24.8 million shares.
"I'm speaking to you from the foxhole now," says analyst William Rabin at
, which has performed no underwriting for Ascend or
, the networker that Ascend recently acquired. Rabin made upbeat internal comments on Monday. He says he'll probably register a report with
on Tuesday morning, reiterating his buy rating and 12-month price target of 70. Rabin points out that his forecast has been more modest from the start -- in fact, by lowering his 1997 estimates Tobia swung into line with Rabin's forecast. (Tobia, whose firm has done no underwriting for Ascend or Cascade, also stated that Ascend is "fundamentally well-positioned in the long term.")
Monday's bloodbath didn't sway money manager Steve Carhart, whose
Pioneer Mid-Cap Fund
owned 1.37 million shares of Ascend on June 30, including its investment in Cascade on a pro-forma basis. (Ascend closed its acquisition of Cascade on June 30.)
"If I didn't already own the stock, I would probably buy under these conditions," says Carhart, although he declined to state his current trading decisions.
"I bet you in the next days the stock will be coming back up," says Amar Senan at
Volpe Brown Whelan
, pending a resurfacing of the bulls and sunnier weather in the
. Senan, whose firm has no underwriting history with Ascend, reiterated his buy rating with First Call on Monday.
The bulls say the sellers have disregarded two crucial factors in their hasty math. First, networking products tend to sell in spurts; and, secondly, July's numbers largely do not reflect the sales of a product that reached the market in mid-July. Here's the bull case:
Networking is a lumpy business.
Patrick Adams, whose
owned 430,000 shares as of Friday, has incorporated that lumpiness into his investment model. He expects Ascend to make 20% of its quarterly revenue in July, 20% in August and 60% in September as the sales force cranks into action and leaves behind the slow summer months. Some other pros ask for a more even distribution of business.
By Adams' estimate, in July Ascend made 18% of the revenue he predicts for the quarter. Not so bad. "I'd be inclined to buy Ascend" if the dip continues without further news, Adams said.
A key product started shipping in mid-July.
Notes Carhart of Pioneer: Ascend started shipping its crucial 56K cards for its MAX TNT Internet access products on July 14. Revenue gains from the TNT products likely will not flow to the income sheet until later in the quarter, he says. Carhart remains unconcerned about the cautionary words from Tobia at Montgomery about slow sales of the upgraded MAX TNT units.
Adams says the MAX product line comprised the bulk of Ascend's revenue in the first quarter, before it acquired Cascade. Ascend officials could not be reached to break down revenue, nor to state why the company filed the Form 8-K statement Monday.
This story was orginally published August 11, 1997