Smith Barney Pumps Up AFC

News Analysis Light Reading 4/8/2004

Today Smith Barney Equity Research analyst Alex Henderson came up with a rah-rah note on Advanced Fibre Communications Inc. (AFC) (Nasdaq: AFCI), saying its fiber-to-the-premises (FTTP) win at Verizon Communications Inc. (NYSE: VZ) has actually raised its profile as a company and helped it win more narrowband (POTS) business.

Henderson's morning research note says he sees plenty of upside for AFC, and he raised his price target for the stock to $30. It's a gutsy call, since the growth opportunity in FTTP is difficult to size up -- especially when it could actually replace AFC's older copper-based products.

Shares of AFC responded by climbing $0.17 (0.76%) to $22.59 in trading today.

AFC, at one time, suggested that FTTP might take away some DSL and POTS linecard wins. One of its marketing staff told Light Reading last year: "We might as well cannibalize ourselves rather than watch someone else do it.” (See AFC Comes Clean on FTTP .)

Henderson reckons that, while Verizon has an eye on the future with its FTTP plans, it is still running copper lines to a lot of new housing builds. Fortunately for AFC, its AccessMax digital loop carrier (DLC) platform can provide POTS and DSL connections now, and, when the time is right, an optical line terminal (OLT) card can be added for FTTP services.

Hence, Henderson writes that AFC is seeing a “significant uptick” in orders for narrowband blades from Verizon in the first quarter. And why not? The chassis are already in place for some kind of connection, so Verizon may as well use them.

But even if FTTP does seem a pipe dream, Henderson says there will be some revenues trickling in during AFC’s next quarter. “We now expect a couple hundred thousand in revenues in AFC's [first quarter] and between $2 million and $6 million in Q2,” he writes.

AFC will announce its first-quarter results on April 28. The consensus of analysts surveyed by First Call is that AFC will report revenues of about $96.6 million for the quarter.

— Phil Harvey, News Editor, Light Reading