Merrill: UTStarcom Appears Overvalued

Tien Tu Sieh, a Hong Kong based telecom equipment analyst with Merrill Lynch, today reduced the firm’s rating on UTStarcom (UTSI) to Sell from Neutral. Sieh notes that the stock has almost doubled from its June lows, despite “little evidence that the company’s business model has improved so drastically.” He says the stock looks overvalued on both a price-to-earnings and price-to-book basis.

Sieh says UTStarcom’s outlook “hinges on the development of the IPTV industry in China and possibly other parts of the world,” but that the company’s other businesses, including equipment for the PAS mobile phone standard in China and its cellular handset unit, “are likely to exert an incremental drag on the company’s overall operating performance. He adds that “further cost cuts remain central to a succesful turnaround.”

The company has previously announced that it is looking for ways to improve shareholder value, but that does not dissuade Sieh from his bearish view. “We concede that management efforts to restructure the operations may result in a sale of some assets that could unlock value for shareholders, but we also believe that this is likely neither a quick nor an easy fix given the divergent profile of the various business units in UTStarcom,” he writes.

What’s kind of odd is that UTStarcom had said that it had hired noneother than Merrill Lynch to advise the company on ways to improve shareholder value; wouldn’t you think the firm would be restricted on the company’s shares?

This morning, UTStarcom shares are down $1 at $9.70.