was in the kennel Monday, but a battle between analysts over the stock's future shows it may well have some bark.
Business: Provides advanced networking systems that connect various user platforms and manage large numbers of users.
1999 Revenue: $64 million
1999 Earnings Per Share: - 8 cents per share (loss)
2000 Estimated Earnings Growth: 153%
52-Week Range: $50.50 - $198.50
% Change from Jan. 1: minus 20.1%
Market Cap: $10.8 billion
P/E Ratio: N/A
Shares Outstanding: 148.6 million
The Sunnyvale, Calif., company provides advanced networking systems, and early on it scored big -- snaring more than a 50% market share in 1999 among companies that produce advanced networking systems that integrate user platforms and allow for management of large quantities of users. This year has seen Redback's market share decline to around 36%, as established players like
have introduced similar products. Still, Redback stock was up 14.1% for the trailing 12 months through Friday.
Then Monday morning,
Morgan Stanley Dean Witter
analyst Christopher Stix lowered his rating on the stock from strong buy to outperform and cut its 12-month price target from by $35 to $115, as part of an overall negative report on the sector. (MSDW took the company public last year.) The analyst cited lower service-provider spending as a likely conduit to a reduction in growth rate in the early-2001 fiscal year. The stock closed down almost 10%, at $72.75, as Stix's report helped cream the entire
Nasdaq Composite Index
with a 150-point loss.
Later on Monday, analyst Christin Armacost at
reiterated her own strong buy rating along with a target of $185. The stock rose slightly in after-hours trading and began a strong upward swing Tuesday morning. The stock was up around 5% as the close approached. So where does this analyst sparring leave Redback?
On the fundamentals, Redback seems relatively stable. Take last quarter, for example. Analysts were expecting losses of 2 cents a share, but the company produced positive earnings of 2 cents per share. Even after yesterday's downdraft, fiscal 2000 earnings are expected to increase 153% year over year, up from 140% after yesterday, according to
. Plus, the network systems provider expects the recently acquired
, a publicly held Internet-management tool company, to boost revenue.
But there are concerns. First, the company announced last week that its chief financial officer, Craig Gentner, plans to retire in the next quarter due to family health issues. The announcement sent the share price down 7.3% for the day as there was no announced replacement. Plus, there's the valuation issue. Even with Monday's carnage, the stock still trades at 57 times sales, and, bottom line, the company just barely showed a profit starting last quarter.
Below are the 10 funds with the highest percentage of Redback in their portfolios. None are showing positive returns this year.
More Trouble in Telco Land? (11/15/00) : Games Companies Play: A bit of a stir Tuesday after folks, yours truly included, noticed a 10-Q disclosure that Redback Networks had factored, or sold off, $5.4 million in receivables . . . more Nortel, Juniper, Redback and Sycamore by the Numbers (9/22/00) : Let's say you don't buy Wall Street's recent call for the collapse of telecommunications spending. Sure, you know that many of the big spenders -- AT & T and WorldCom, for example -- are finding growth hard to come by . . . more In a Yo-Yo Market, Don't Get Tangled Up in Low-Percentage Trades (7/3/00) : Sometimes you can learn more from what you didn't do than what you did do. At the market's close last Monday, June 26, I was watching SDL and Redback Networks for potential end-of-day gap plays . . . more