Shares of the Newport Beach, Calif.-based company gained $7.75, or about 19 percent, to $49.25 after analyst Mark Edelstone raised his earnings estimates and upgraded the stock to a "strong buy" from an "outperform." By midday, volume topped 16 million shares, almost three times its daily average of 6.2 million.
According to Edelstone, demand for faster and better Internet products has driven sales for Conexant's technology as growth in its other businesses slows. He raised fiscal 2001 estimates, which ends in September, to $1.25 from $1.20 and left his forecast for fiscal 2000 and his price target unchanged at 95 cents and $100, respectively. Analysts surveyed by First Call expect the company to earn 91 cents in 2000 and $1.14 in 2001.
Edelstone raised his outlook because of the strength of Conexant's network access division. The unit "reported record revenues of $125 million in the March quarter, and the division grew 6 percent (from the previous quarter) and 166 percent over the year-ago quarter to account for 25 percent of total revenues," Edelstone wrote in his report.
He noted that the division's gross margin is about 60 percent, compared with 46 percent for the company as a whole during the last quarter.
Conexant makes chips and software that equipment makers such as Lucent, Nortel and Cisco Systems use for network and Internet products.
The network access division makes Internet infrastructure equipment used in wide-area networks (WANs); a WAN transports information between a company's main office and its far-flung branches, for example. The division also makes broadband products.
Edelstone expects quarter-to-quarter revenue growth in the division to be in the double digits for the remainder of this year and says "60 percent or better growth appears to be realistic in fiscal 2001 as Internet traffic increases and the convergence of voice and data services continues."
For its most recent second quarter, Conexant reported revenue of $502, up 58 percent over the last $317 million from last year's quarter, but down slightly from the previous quarter's revenue of $510 million. The company posted pro-forma earnings of 21 cents a share, excluding acquisition costs, compared with year-ago pro-forma earnings of 5 cents a share.
The company has made a string of recent acquisitions to strengthen its business. Conexant scooped up Philsar in April for about $214 million in stock to boost its wireless units. This year the company also bought Applied Telecom, Microcosm Communications and Oak Technology. It closed its purchase of Maker Communications in March.