UTStarcom rises on 3Q, analyst praise

Telecommunications equipment provider UTStarcom Inc. (Nasdaq: UTSI) was up 12 percent Friday as the market absorbed its strong third quarter report.

Shares were up 2.38 to 20.38 Friday morning, and analysts were bullish on the stock. Analyst Samuel S. May at U.S. Bancorp Piper Jaffray reiterated a "strong buy" and had a 12-month target price of $75 on the stock. Analyst Michael E. Ching at Merrill Lynch reiterated a near-term "accumulate" rating, and a long-term "buy." UTStarcom was also rated "strong buy" by analyst Timothy P Long at Credit Suisse First Boston.

The stock got a lift in June when it said the Ministry of Information Industry (MII) in China had given it approval to extend its wireless access system. UTStarcom primarily focuses on China's rapidly growing telecommunications sector.

Pro forma net income (excluding stock compensation expense and amortization of intangible assets) increased to $14.0 million, or 14 cents per share, beating First Call's expectation of 11 cents a share, and showing strong growth from $9.2 million, or 12 cents a share in the prior year period. Actual net income (including stock compensation expense and amortization of intangible assets) for the third quarter of 2000 was $10.9 million, or 11 cents per share compared to $6.6 million, or 9 cents a share for the third quarter of 1999.

Net sales for the third quarter increased to $103.8 million, up 89 percent over the $55.0 million in net sales reported in the prior year period.

The company said business in Mainland China continued to be extremely strong, and the company extended reach into new markets through the addition of new sales offices in Taipei, Hong Kong and Miami, extending its access further into Asia, the Indian subcontinent, and Latin America.

The company also said its balance sheet is strong, with $262 million in cash and short term investments.

Analyst Seth Spalding at Epoch Partners said in a research note Friday that "UTStarcom's growth was unhampered by any of the capital spending concerns plaguing domestic communications equipment players." And that though strength in handset sales dampened gross margins in the quarter, margins should improve as handsets expand features in coming quarters.

He called the company a "core play on the explosive telecom infrastructure growth in China and other developing nations," and added that it is trading at a significant discount relative to its peers.