Goldman Takes Tempered View on Corning, JDS Uniphase

The research firm starts coverage on both and says they probably won't perform better than the overall sector.
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Goldman Sachs initiated coverage of two networking companies Thursday --

JDS Uniphase

(JDSU)

and

Corning

(GLW) - Get Report

-- but the research firm offered lukewarm comments on both stocks and said that at best, they'll probably perform on par with other electronics and component suppliers.

As for JDS, Goldman said leadership in the optical market, strong technology, good financial leverage, increased revenue and a sound balance sheet should "ensure prosperity" for the company once a telecom recovery comes about.

Goldman said its forecast for a 16% increase in telecom revenue in calendar 2004 is optimistic compared with some predictions, but the firm added that shares of JDS seem priced for a much more impressive rebound in 2004 and 2005 than is likely. Therefore, Goldman is worried about the company's valuation, and it determined the stock should have an underperform rating.

For the group of electronics manufacturing services providers, electronics distributors and electronic component makers, Goldman has a neutral industry view.

The new coverage on Corning was a little more positive, resulting in the company getting an in-line rating, but Goldman said the stock's current valuation leaves only average room for upside to the share price.

"We like Corning's remarkably consistent and effective long-term strategy: to leverage its technologies, manufacturing expertise and scale, to benefit from growth in existing markets, while maintaining R&D leadership to create next generation opportunities," Goldman said.

The research firm also said Corning has a good mix of businesses, with strength in optical fiber, LCD glass and environmental technologies. "Half of revenues are still tied to telecom, where we have a somewhat favorable view of metro fiber demand improvement starting

in the second half 2004, but there are risks to our view," Goldman said.

Fair value on Corning's stock is around $8, the firm concluded. For JDS, Goldman believes fair value is just under $3. In recent trading shares of JDS were down 7 cents to $3.90. Corning was lower by 42 cents at $8.32.