Here's a simple recipe to make a stock price rise. First, revise sales and earnings guidance upward. Then, add an analyst upgrade to "outperform." Mix the ingredients, cook for an hour and a half, and then watch your stock price take off in the marketplace.
ADTRAN (NASDAQ:ADTN), a leading provider of telecommunications equipment, gets an A for following the recipe. The company announced revised earnings and revenue estimates for Q2 2005, which ends June 30. It now expects sales to be between $114 million and $116 million and diluted earnings per share to be between $0.24 and $0.25. Previously, it was expecting sales of $112 million and EPS of $0.22.
ADTRAN CEO Mark Smith attributed the increased performance to "stronger than anticipated" orders for current and new products. He added that he expects the momentum to continue and translate into more market-share gains.
As a result, the stock was up by as much as 12% today.
ADTRAN provides telecommunications equipment -- especially DSL equipment -- to giants like Verizon (NYSE:VZ), BellSouth (NYSE:BLS), and SBC Communications (NYSE:SBC). Recently, SBC lowered its subscription price for broadband DSL. If this price reduction continues to convert dial-up customers to broadband, ADTRAN should continue to see increased DSL equipment sales to SBC, its largest customer.
In addition, ADTRAN is in the running to be a supplier of equipment for Verizon and SBC FTTP (fiber-to-the-premises) projects. Getting those last-mile connections up and running is an important part of pushing video services, such as IPTV (Internet Protocol TV), to a critical mass. If it can do that, it can pose a serious threat to cable TV. And doing so would be a great source of future revenue for ADTRAN.
It appears that the good news is in the price of the stock, because ADTRAN is up almost 50% since January, although the telecommunications sector is plenty volatile. But ADTRAN is a solid company that's right in the thick of things with a good product development strategy. So keep an eye out for any serious pullback in the stock price.
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Fool contributor David Meier does not own shares in any of the companies mentioned. The Motley Fool has a disclosure policy.
