Patience Key with Westell

We stick to our Hold recommendation for Westell Technologies ( WSTL - Analyst Report), a provider of broadband access products and conferencing services, after the company declared its fourth-quarter financial results, in line with our estimates. Although WSTL’s financial results for the fourth quarter was down, we consider the company as more attractive for a longer time-horizon.

WSTL is systematically transforming itself into a leading technology-solutions provider for home networking and controller systems, targeting the wireless and wireline carriers, cable and other multi-service operators (MSO). The company announced near completion of its restructuring and manufacturing outsourcing initiatives, which are likely to improve operating margins in future reporting periods.

WSTL’s decision to explore strategic alternatives for its conference services unit may also lead to improved financial conditions, which the company believes will be in the range of $39 million to $41 million in the first quarter of 2009 fiscal year. On the other hand, we do not anticipate WSTL to make a profit before the fiscal year ends.

With respect to P/S and EV/S, the stock is trading significantly below its peers. Our assessment indicates that earnings volatility will remain at least over the near-term, but we forecast financials to improve from mid fiscal 2009 as the company harnesses revenue from major carriers. We maintain our Hold rating and the same six-month price target of $2, which equates to approximately 0.4x our fiscal 2009 Enterprise Value/Sales estimates.

Nalak Das has contributed to this report.

Read the full analyst report on WSTL