Telecom equipment provider Avaya
Professional analysts, on the other hand, know that Avaya "designs, builds and manages communications networks... Internet Protocol (IP) telephony systems and communications software applications and services." Well, at least according to its press release.
But while they may know what the company does, analysts are still scratching their heads over what it did its second fiscal quarter. As Reuters
What Avaya did report was $0.27 in per-share diluted earnings for its fiscal second quarter -- nearly quadruple the $0.07 that Wall Street analysts had been looking for. So why is that so hard to understand?
The reason is that the company's total profits of $125 million included $26 million in onetime losses, $22 million from discontinued operations, and $89 million in onetime gains. So an analyst needs to navigate some pretty tricky addition and subtraction exercises to arrive at a useful earnings result. Net out those three onetime charges, and the company appears to have racked up core earnings of only $40 million, or about $0.09 a share. That's better than analysts had expected, and certainly an improvement over the year-ago quarter, when the company lost $0.11 a share.
And that was not the end of the good news. Revenues increased 5.9%. Gross margins climbed from 44% to 46.8%. Operating margins quadrupled from 1.4% to 6%. So basically, things are looking up for Avaya.
But for Avaya's shareholders, not so much. First reason: share dilution. Avaya loves it, racking up 26% dilution over the past 12 months. Second (and this is really the elephant in the middle of Avaya's corporate boardroom): valuation.
So, kudos to Avaya for converting its losses of yesteryear into profits this year. But with projected earnings growth over the next five years estimated to average 10% per annum, I think this stock is just plain overvalued. No mystery about that at all.
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Fool contributor Rich Smith has no interest in any of the companies mentioned in this article.