Foolish Forecast: JDS Uniphase Still Looks Cheap

All year long, JDS Uniphase (Nasdaq: JDSU  ) has trounced every earnings estimate Wall Street could hurl its way. Tomorrow, it goes for a clean sweep, reporting fiscal Q4 and year-end earnings for 2008.

What analysts say:

  • Buy, sell, or waffle? An unlucky 13 analysts give JDS Uniphase a lucky seven buy ratings -- and a half-dozen holds.
  • Revenue. On average, they expect to see 13% quarterly sales growth to $395.8 million.
  • Earnings. Q4 profits are predicted to shoot up 43% to $0.10 per share.

What management says:
Actions speak louder than words, right? Then what does this tell you:

A few weeks after reporting Q3 earnings in April -- and marking its fifth successive quarter of reporting positive free cash flow -- JDS announced a $200 million stock buyback. Less than two months later (last month), management announced it had completed the whole dang thing. Somebody sure sounds confident.

By the way, I applauded the idea back then, arguing that JDS' stock was selling cheaper than almost any competitor you can name -- cheaper than Agilent (NYSE: A  ) or Coherent (Nasdaq: COHR  ) , and way, way cheaper than either Finisar (Nasdaq: FNSR  ) or Jim Cramer fave Bookham (Nasdaq: BKHM  ) .

What management does:
Sure, if the principles of GAAP accounting are your bag, JDS looks a bit like a basket case. No profits. No operating profit, even. But gross margins are rising steadily, and free cash flow is plentiful.

Margins

12/06

3/07

6/07

9/07

12/07

3/08

Gross

36.1%

36.3%

37.3%

39.0%

40.6%

41.5%

Operating

(7.8%)

(6.8%)

(5.9%)

(4.9%)

(3.5%)

(3.5%)

Net

(2.8%)

(4.0%)

(1.9%)

(1.1%)

(1.2%)

(0.7%)

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

One Fool says:
Returning to the buyback, JDS repurchased 17.2 million shares at an average cost of $11.60 per stub. In so doing, it reduced shares outstanding by around 8%. Today, JDS shares are selling around the same price that JDS management paid for them, even as each one of the shares remaining has a greater claim upon this strengthening company's eventual profits.

Unless we learn tomorrow that free cash flow has fallen off a cliff, this means the buying window remains open to us. So whatever Wall Street obsesses over tomorrow, keep your eye on the ball, Fool. Listen carefully for word of continued cash profits, and ignore the GAAP noise.

Related Foolishness:

Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.


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  • Report this Comment On September 10, 2008, at 12:31 AM, JAMES380 wrote:

    This is the first stock I picked out of others comments.It is like other stocks I've researched

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