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CACS Crackup: What Happened?

Carrier Access Corp. (Nasdaq: CACS) stock has been creamed this week after the company announced Wednesday night that fourth-quarter revenues will fall well short of analysts' expectations. (See Carrier Access Posts Q4 Prelims.)

Carrier Access reported that revenues will total $12.3 million to $12.5 million as opposed to the expected $16.2 million. Non-GAAP losses per share will be between $0.23 and $0.27, compared with the forecasted $0.17. The company cited poor sales from wireless and OEM customers as the reason for the downturn. Shares are off 10 percent this week alone.

So what happened?

According to an analyst report by George C. Notter of Jefferies & Co. Inc. , Carrier Access is reluctant to offer any explanation of the numbers until the official earnings conference call. A slowdown in sales from wireless companies such as Cingular Wireless was the only concrete example given in the company's press release.

The AT&T Inc. (NYSE: T) and BellSouth Corp. (NYSE: BLS) merger was likely the main cause of meager Cingular revenues. However, the poor earnings are likely attributed to other areas of Carrier Access's business. "It's mostly conjecture, but the converged access and government business probably contributed heavily to the disappointing quarter," offered Notter when reached for comment.

Despite all of this, Notter is maintaining a Buy rating on the company's stock. The completion of the AT&T/Bellsouth merger is expected to increase Cingular revenues, and a strong increase in revenues from wireless companies in general should bring the company's EPS out of the red by 2008. "It's an interesting long investment idea," said Mr. Notter.

Notter sees the current price as a bargain. "Assuming the stock trades down 10% ($5.00 to $6.00 range) today, the business trades at 1.2x – 1.4x tangible book value and EV/2008 sales of just 0.7x… as such, we're inclined to hang on to our buy rating," according to his report.

Carrier Access will hold its official earnings conference call on February 6.

— Raymond McConville, Reporter, Light Reading

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