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Starent Networks (STAR-OLD) is down about 9% post earnings for no great particular reason; but I do see a brokerage downgrade Friday morning. I am going to begin rebuilding the position since it is still in good technical shape and I like the space this stock is in. We had STAR down to a 0.5% stake, and I am going to rebuild slowly since the market is overdue for a drop. But considering we have dropped so much long exposure the past 5 sessions, in terms of portfolio management, I am looking to add something on the long side; most of the names I want are nowhere near a support level.

I am adding 1% exposure here, to take STAR up to a 1.5% stake, near $24. I want to add another batch closer to $23. The 50 day moving average is just below $23 - if that is broken we'll exit most of the stake and revisit. (gap was filled Friday)


EDIT 12:45 PM
- full report for STAR here. The more I look, the more I like - a year ago the company had a tax rate under 10%, this year near 40% and still bringing in the profits.

  • Net revenues for the second quarter of 2009 were $78.3 million, compared to net revenues of $61.2 million for the second quarter of 2008. Net revenues for the six months ended June 30, 2009 were $151.5 million, compared to $117.4 million for the same period in 2008.
  • The company’s income before tax expense in the second quarter of 2009 was $24.4 million, an increase of 61% from the second quarter of 2008. Income before tax expense for the six months ended June 30, 2009 was $45.6 million, an increase of 81% from the same period in 2008.
  • The company’s tax rate was 37.7% for the second quarter of 2009, and 38.6% for the six months ended June 30, 2009, reflecting normal provisions for income taxes. This compares to a tax rate of 8.9% for the second quarter of 2008 and 7.1% for the six months ended June 30, 2008, which did not reflect normal tax provisions due to the company’s use of net operating loss carryforwards in determining the tax provision for those periods.

So remember, in American accounting when we lavish executives with options - it doesn't count against earnings. (You'd like that gig too wouldn't you?) So as we turn a blind eye to the $5.6 given to executives, Starent made $20.8M - at least in the world of analysts and that's the world we measure for PE ratios. So instead of 20 cents they made 25 cents; either number was a big beat versus analysts expectations of 17 cents.

  • Net income for the second quarter of 2009 was $15.2 million, or $0.20 per diluted share, compared to net income of $13.8 million, or $0.19 per diluted share, for the second quarter of 2008. Second quarter 2009 results included $5.6 million of non-cash stock-based compensation expenses compared to similar expenses of $4.5 million in the second quarter of 2008.
  • Excluding the impact of stock-based compensation, non-GAAP net income for the second quarter of 2009 was $18.8 million, or $0.25 per diluted share, compared to non-GAAP net income for the second quarter of 2008 of $18.3 million, or $0.25 per diluted share.

I don't see any guidance, so frankly I am not sure (a) why the stock is down or (b) an analyst downgraded it. Oh well .. my quick look through the P&L shows an astounding 80% gross margin. Wow - those are software type margins... not equipment. Those margins can't last forever, but for now STAR has a strange hold on its niche. While earnings were equal to last year despite the 28% growth in revenue year over year, that's the culprit of those darn taxes.

Another company able to grow its top line and prosper in a horrid economy - secular growth, get some. Via Reuters

  • In a conference call with analysts, company officials said they continue to see strong trends in mobile data, driven by evolving mobile broadband technology, new service offerings and improved multimedia devices.

Starent Networks, Corp. is a leading provider of infrastructure solutions that enable mobile operators to deliver multimedia services to their subscribers. Starent Networks has created solutions that provide mobile operators with the functions and services needed for access, mobility management and call control in their networks.

[Apr 29, 2009: Starent Networks (STAR-OLD) 3G Player with 4G Potential]

[May 8, 2009: Bookkeeping - Beginning Starent Networks]

[May 11, 2009: Starent Networks on Mad Money]

Disclosure: Long Starent Networks in fund; no personal position

Source: Why I'm Rebuilding My Position in Starent Networks