Market Overview

Jefferies Lowers Estimates for Wireless Names (MOT, CELL, CRNT, PWAV, SWIR)


Jefferies & Company is out with an analyst note this morning, where they lowered their estimates and price targets for wireless names. They cited the nearly 15% YTD depreciation of Euro vs. the dollar, which will likely “result in a slight haircut to our estimates.” In the wireless segment, Jefferies sees only modest opportunity to pass on costs. However, the potential negative impact should be muted due to strong demand environment in US and Asia and focus on cost-cutting.”

The analysts noted, “The Euro has depreciated roughly 15% vs. the dollar. For our wireless coverage, we estimate that the euro depreciation may result in 1-4% adverse revenue impact and 3-9% EPS impact for FY10. Wireless sector derives 20-25% of rev from Europe/EMEA, but euro currency exposure is likely lower than that. CoGS are generally denominated in dollars, so we expect gross margin pressures. However, renewed focus on cost controls and efficiency gains will mitigate the negative impact. European Opex, which is generally incurred in local currencies, also offers a degree of natural hedge.”

They added, “Europe was slower than other regions to recover from the 2009 downturn. However, we haven't detected signs of demand weakness now. Additionally, demand continues to be strong in the US and Asia; and component shortages/higher lead times persist in the wireless industry. As a result, we think the companies would be in a position to slightly raise euro prices over the long-term to offset some of the currency impact. Some contracts have built-in currency clauses and we have heard the talk of increasing prices for new tenders.”

Jefferies analysts closed by saying, “We are reducing rev ests largely to account for euro/dollar translation effects. Reduction in margins is slightly lower than pure translation due to the expected offsetting impact of cost cuts/efficiency gains. For FY10, Motorola (NYSE: MOT) rev and EPS go down by 0.4% and 4.5%. Similarly, Brightpoint Inc. (NASDAQ: CELL) ests go down by 4.2% and 2.8%; Ceragon (NASDAQ: CRNT) ests go down by 1.1% and 7.4%; Powerwave (NASDAQ: PWAV) ests go down by 1.1% and 9.5%; and Sierra Wireless (NASDAQ: SWIR) ests go down by 0.8% and 1.8%. We are reducing our PT for Ceragon to $12 from $15 and for SWIR to $8 from $10.”

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Posted-In: Jefferies & CoAnalyst Color Downgrades Price Target Analyst Ratings


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