Tech Stocks Get Boost from Merger Close

6/25/2000 8:00 PM Eastern

Cable-equipment stocks were on the rise during the past week on news of the completed merger between AT & T Corp. and Media-One Group Inc. and optimism concerning the rollout of new cable services.

Atop the chart was Corp., which rose 28 percent between June 14 and 20 to $26.44 per share. Other cable-equipment vendors that saw big gains were Com21 Inc., Terayon Communication Systems Inc., Amphenol Corp., CSG Systems International Inc. and ADC Telecommunications Inc.

Com21 rose 19 percent to $24.25 per share; Terayon increased 12 percent to $69.75; Amphenol increased nearly 20 percent to $58.63; CSG rose 13 percent to $52.81; and ADC increased 7 percent to $83.43.

CSG's rise came one week after the stock fell about the same amount, from $58.75 June 7 to $44.50 June 15. That drop was mainly due to speculation that the company would lose business once the AT & T/MediaOne merger was completed.

Janco Partners analyst Ted Henderson said those fears were unjustified, given CSG's contract with AT & T whereby AT & T is obligated to move all owned subscribers to the CSG platform after any other pre-existing contracts are honored.

"[The drop] was a knee-jerk reaction that CSG was losing business," Henderson said. "This stock does trade a little volatilely sometimes, but they are developing new products and our argument is that they are very well positioned."

Amphenol rose more than 15 percent June 15 after Donaldson, Lufkin & Jenrette Inc. analyst Mark Hassenberg raised his earnings-per-share estimate for fiscal-year 2000 to $2.20. Hassenberg said the company was "extremely well positioned to enjoy double-digit growth in the data-communications market for the foreseeable future."

Josephthal & Co. Inc. analyst Lawrence Harris attributed the rise in ADC's shares to several factors, including the completion of the AT & T/ MediaOne merger, a 2-for-1 stock split and ADC's recent acquisition of telecommunications-infrastructure-equipment maker Centigram Communications Corp.

Harris raised his 12-month price target on ADC to $90 per share from $85, and he said the cable-equipment sector in general should do well in the coming months.

Harris added that some investors may be anticipating bigger business for ADC's "Homeworx" cable-telephony platform as a result of the AT & T-MediaOne merger. ADC had been a supplier to MediaOne. "[ADC] may have a stronger role with AT & T," Harris said.

He added that ADC's cable-equipment segment-which makes up about 15 percent of the company's total revenue-is also expected to do well.

Harris also upped his price targets on Scientific-Atlanta Inc.,, Antec Corp. and CommScope Inc.

"All of the new services that cable operators are introducing will have a positive impact on the results of the various equipment vendors," he said.

"Scientific-Atlanta, we believe, will have a strong June quarter," he added. "We've raised our earnings estimates from 26 cents [per share] to 27 cents. They may deliver as many as 750,000 digital set-tops in June. The demand for digital video is growing."

Tooling Upward

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