NEW YORK ( TheStreet) -- Shares of JDS Uniphase ( JDSU) broke to fresh multi-year highs on Wednesday as optimism continued to surround the stock following last week's strong earnings report. The stock closed the regular session at $24.42, up 7%, on volume of 25.1 million, more than four times its three-month trailing daily average of 5.4 million. This latest burst follows the shares pushing above $20 for the first time since mid-2007 on Friday after the company delivered blowout fiscal second-quarter numbers after Thursday's close. At current levels, the shares have more than doubled since early September and are up 180% in the past 52 weeks, leaving their respective 50-day and 200-day moving averages of $16.55 and $12.86 in the dust. For investors who've ridden the stock up, the question becomes how much higher can it go. Wall Street is bullish with nine of 13 analysts covering the shares at strong buy (6) or buy (3), and there's a feeling that the company is well-positioned to benefit as the major network providers like AT&T ( T) and Verizon Communications ( VZ) bulk up traffic capacity as Web usage continues to surge thanks to smartphones and tablets. The trend should boost demand for both JDS Uniphase's test and measurement products and its optical components. "There are few things that can move JDSU's fundamentals as much as a major network upgrade," said Miller Tabak & Co. in a research note last week launching coverage of the stock with a buy rating and $28 12-month price target. "Our work in the field over the last several months has identified a number of major Tier 1s that are likely to do a major network upgrade to 40G/100G over the next two years." The firm identified both AT&T and Verizon along with BT Group ( BT), Deutsche Telekom and NTT as companies that are "among the highly probable buyers of
a sizeable amount of this technology" and said it expects to see a number of projects worth $200 million to $400 million launch in the next 18 months to build out 40G/100G metro and long haul footprints. "We think this will be the strongest demand cycle for Optical since the 1998-2000 time frame," Miller Tabak said. "Further, we think the larger component companies are the best way to play this trend." For calendar 2011, the firm established an earnings view of $1.18 a share for JDS Uniphase vs. Wall Street's current consensus estimate of 80 cents a share. It's looking for earnings of $1.44 a share in calendar 2012 vs. the average analysts' view of 94 cents a share.
That kind of above-consensus performance will be needed to push the valuation higher. The current forward price-to-earnings multiple on the stock is 22.2X. Miller Tabak believes that if the company is able to meet its performance expectations for calendar 2012 with improving operating margins and the growing broadband and optical equipment demand, the stock could take off. "We think JDSU's valuation could move up into the 20X-23X vicinity on 2012 estimates by mid to late 2011 implying upside to the $28-$30 range," the firm said. Of course, there is competition out there, and Miller Tabak believes JDS Uniphase may be vulnerable with Emcore ( EMKR), Finisar ( FNSR), and Oclaro ( OCLR) all considered fairly formidable. Specifically, the firm thinks JDS Uniphase is at disadvantage against Finisar in the WSS
wavelength selective switch market, and that its older tunable-XFP technology "will prove challenged" by the offerings of all three. Shares of the competition have outperformed as well with Emcore up 77%, Finisar gaining more than 280%, and Oclaro rising 80%. Evercore Partners was increasingly bullish about JDS Uniphase after the earnings report last week, lifting its 12-month price target to $24 and maintaining its overweight rating while boosting earnings estimates for 2011 and 2012. It sees the company raising its outlook later this year for many of the same reasons Miller Tabak cites. "Seasonal sequential top-line guidance of down 4-8% leaves room for CY11 numbers to move higher," the firm told clients. "Rebounding optical demand due to data traffic growth and technology transitions should result in positive revisions." -- Written by Michael Baron in New York. >To contact the writer of this article, click here: Michael Baron. >To submit a news tip, send an email to: firstname.lastname@example.org