Sycamore Ntwks Upped from Sell

Sycamore Networks Inc. (SCMR - Analyst Report) is a provider of intelligent bandwidth solutions for fixed and mobile networks. The company's first-quarter financial results were above our estimates. The company has taken effective cost cutting measures and the balance sheet remains impressive.

The current market cap is below Sycamore's net cash position of nearly $937 million or $3.31/share. The company remains one of the pure-play optical switching manufacturers in the communications industry. Revenue may remain lumpy on a quarterly basis due to weak economic conditions throughout the world, but the company's cash position should be able to withstand near-term impediments. We upgrade our rating to a Hold.

We believe Sycamore's valuation will be based on future revenue potential relating to new network deployments and its overall net cash position. Meaningful financial discipline related to expense control and new additions of public utility customers may further improve the company's future earnings potential. Our six-month price target of $3.50 is based a slight premium to the company's net cash per share balance of $3.31/share and also on 0.6x EV/S our fiscal 2009 sales estimates.

Nalak Das contributed to the report.

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