The WAN Connection

Newbridge Networks

Newbridge Network's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NN)") else Response.Write("(NYSE: NN)") end if %> valuation has expanded at a rapid clip in the last couple months as the company has announced contracts for its ATM access switches. Though the company has experienced soft sequential sales comparisons because of product transitions with a recently acquired switched routing system, takeover talk has bouyed the shares. Because of strong sequential sales advances in frame relay and ATM switching sales, investors have overlooked last quarter's single-digit operating earnings growth and flat EPS growth. With the highest valuation of the more mature companies in the Focus Group, that could pose some danger for future share price potential.

The Financials

Analysts believe Newbridge's sales, general, and administrative (SG&A) expense structure can get back in line with historical levels in the low-20% range. In the company's first fiscal 1998 quarter, SG&A expenses expanded by five percentage points, killing earnings momentum and dulling a shining 52% year-over-year increase in sales. Had operating expense levels remained steady as a percentage of sales, EPS growth would have come in at 22%, which would be a strong performance in the peer group.

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