Westell Stays a Hold

Taking a "wait and watch" approach on shares of small-cap broadband provider Westell Technologies (WSTL - Analyst Report) is Zacks senior telecommunications industry analyst David Weissman, CFA.  We excerpted some of the details from his latest report:

"We maintain our Hold recommendation and the same valuation target for Westell Technologies, a leading provider of broadband access products and conferencing services, following the mixed financial results for third quarter (ended December) fiscal 2008. While revenue declined as a result of transitioning a major contract with AT&T (T - Analyst Report) (former BellSouth territory), EPS was above our expectation due to ongoing outsourcing and restructuring activities. Consequently, gross margin returned back to a slightly higher level.

"Although the company's financial outlook for the fourth quarter remains flat with the prior reporting period, we do believe that the situation may improve in fiscal 2009 as Westell received two major contracts from AT&T and Verizon (VZ - Analyst Report). An announcement of further headcount reduction and the decision to explore strategic alternatives for its Conference services unit may also lead to improved financial prospects in future reporting periods.

"Westell is currently trading at 38.5x to our estimated fiscal 2009 earnings. This is at a significant premium over the S&P 500 average but at a discount to the peer group average. With respect to other selected valuation metrics, the stock is also trading below its peers. Our assessment indicates that earnings volatility will remain at least over the near-term, but we forecast financials to improve by the middle of next year."

Read the full analyst note on WSTL.

Read the full analyst note on VZ.

Read the full analyst note on T.