Bay Networks reported earnings of $0.15 per share before charges on $543.0
million in revenues. Revenues increased a slim 1.4% year-over-year to a level
Bay Networks called a "record," although the 5.8% sequential jump was a fairly
solid performance. With current 1997 earnings estimates clustering around
$0.90 per share and 1998 estimates shaping up at $1.25 per share, Bay Networks
trades at 25 times forward earnings. Does the fact that the company is generating
30%-plus earnings growth because it has been a train wreck for the last two
years potentially impact the multiple that investors are willing to place
those earnings? Some investors might suggest that the company does not merit
a premium multiple until its profit margin comes close to those of its
competitors.
Is Bay Networks finally turning around or is it just riding the coattails
of Cisco Systems and 3Com Corp.? Can David House and the folks at Bay possibly
compete with the 800-pound gorillas in the networking industry? Is this an
opportunity to short the stock? Let us know what you think by posting in
the message folders!
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