I nibbled on some…

I nibbled on some Adtran common stock.  And I shorted a tiny bit of Cablevision.  These two trades aren’t necessarily for earnings season or anything…they’re longer term positions that I just didn’t have on the sheets yet.  Here’s my Adtran analysis:

Adtran is an old name in the land of communications equipment with   more than 1,700 different products sold directly through partners and   distributors. They were a big supplier of T-1/E-1 equipment back in the   day but they were probably best known in the mid-late 1990s as a   purveyor of DSL (digital subscriber line) equipment to the phone   companies. Yes, if your broadband connection is a DSL line from Ma Bell,   there’s a good chance that it’s Adtran’s equipment sitting back at the   central office.

The company developed three new business segments — Broadband Access,   Optical and Internetworking — to go along with their legacy  operations.  As time has passed, the growth businesses have expanded to  the point  where they now drive operations and account for nearly  two-thirds of  today’s sales. Adtran is a major play on backhaul capital  expenditures  as its customers scramble to build out better, faster,  more reliable  wireless networks that need Adtran’s products underneath  them to make  them run. It believes that the bulk of its optical  products are being  directed at alleviating bandwidth issues in wireless  backhaul.

The stock’s bumped up against resistance in the mid-40s, but it’s got   great support at $40 or so. As estimates for 2011 include only 10% top   line growth in an environment where wireless network buildups for   smartphones and tablets can drive 20% top line growth and margin   expansion, earnings expectations are probably too low.

Figure the  Company can earn closer to $2.50 or so per share next  year, which would  have analysts closer to $3 per share in earnings for  2012. Throw an  enterprise value to earnings ratio 15 to 20 on that and  we’re looking at  a price target closer to $60 than the $34 at the time  of original  publication.

(And more recently, I wrote the following update:)

The stock’s not as cheap as it was when we first put it in the   portfolio, as the stock has rallied even faster that the company’s   strong earnings growth in the last year.  That said, it’s not expensive  either at only 17x next year’s earnings,  ex-cash.  Adtran’s benefitting  big time from the accelerating wireless  network buildout going on in  this country (and around the world).

This  one is a high-risk/high-possible-return set up into earnings,   as I do expect a strong report and with the recent   pullback/consolidation in the stock coming down a good 10% from its   recent new highs, the options in this name have some pretty big   premiums, so I wouldn’t just plow into calls in this one, but I do think   it is a good long-side common stock trade into earnings, and I  wouldn’t be shocked to see this stock in the mid-to-high-fifties in  coming months if the report is indeed good.

I’ll put the Cablevision analysis into the next post.