Will JDS Uniphase Get Another Fresh Start?

One company due to report this week is optical component sector leader, JDS Uniphase (JDSU), one of the stocks in my portfolio. As usual, JDS is very late in reporting (today) its results for the June quarter, the first in its fiscal year. The stock has been languishing of late at $14, although the independent research company "Morningstar" claims it should have a fair value of $20.

Investors have been constantly waiting for JDS to make a fresh start, showing growth and significant profitability, ever since the optical sector's massive collapse seven years ago. But it appears that the devastation was so heavy back then, that it is taking a good many years for the sector, and JDS in particular, to recover, and there is still no certainty that it will at long last give frustrated investors something to smile about when it unveils its quarterly results on Wednesday.

"Morningstar" says that the old dream during the bubble period of a totally optical telecommunications network, meaning from end customer back to provider infrastructure, is on the verge of becoming reality due to the tremendous load that networks have to cope with in the form of video content and heavy software. If there was ever a company that stands to benefit from this as the key supplier of all infrastructure components, it is JDS. However, "Morningstar" qualifies this by adding that the tough competition that JDS faces in the field is preventing it from a high enough profit margin, and holds the stock price back from reaching the $20 fair value it set.

Investors are building on the upcoming report, not so much on the company's expected $338 million in sales and earnings per share of $0.04, as on strong guidance for the September and December quarters. Key customers for optical components worldwide, such as Verizon Communications Inc. (VZ), and AT&T Inc. (T) in the US, and NTT Corp. (NTT) in Japan, have already announced massive investments in everything connected to optical networks in the second half of the year. Hence the great hope that JDS's guidance this time will be better than expected.

Disclosure: Author is long JDSU.

JDSU 1-yr chart:

Published originally by Globes [online], Israel business news - www.globes.co.il
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.