Ascend stock jumps on upgrade

An analyst's upgrade of the networking gear maker adumbrates a 10 percent jump in its stock.

Dawn Kawamoto
Dawn Kawamoto Former Staff writer, CNET News
Dawn Kawamoto covered enterprise security and financial news relating to technology for CNET News.
2 min read
Ascend Communications (ASND) shares jumped 5-3/8 today after an analyst expressed faith in the company after its megamerger with Cascade Communications.

Merrill Lynch analyst Joseph Bellace upgraded the company's intermediate-term rating to "accumulate" from "neutral," saying he believes the company will succeed in meeting its estimates for the June 1997 quarter.

Shares of Ascend closed at 49-1/8, up from yesterday's close of 43-3/4.

Bellace expected Ascend will improve its performance in the June 1997 quarter over the same period a year ago.

"We have increased confidence that Ascend will achieve our forecast of 50 percent revenue growth to $310 million versus $205.6 million and [earnings per share] of 31 cents versus 23 cents in the June 1997 quarter," Bellace said in his report. His estimates reflect the combined operations of the two companies.

Bellace also upgraded his recommendations based on the belief that Ascend's 56-kbps cards for its MAX 4000 were shipped in the quarter and that 56-kbps cards for the MAX TNT remote access device will ship in July. Ascend officials had previously said manufacturing of those products had a two- to three-week delay and modestly restrained revenue growth in its remote access business.

That announcement earlier this month had sent Ascend's stock down 13 percent.

Bellace also noted that the recent weakness in the company's stock price indicates the market has already discounted the dilution to shareholders that occurs from the Cascade merger. Ascend last March agreed to buy Cascade for about $3.7 billion in stock.

"At the current price, the common stock is selling at 23 times estimated 1998 [earnings per share] of $1.80 to $2. We believe this is an attractive valuation for a company with an estimated 36 percent EPS growth rate in 1998 and a three to five year EPS growth rate of 40 percent," Bellace said in the report.