SFA: Top Pick on Set Top Boxes

05/30/2003 12:00 am EST


John Dessauer

President, John Dessauer Investments, Inc.

Scientific Atlanta, the leading maker of set-top boxes for cable networks, is recommended as a short-term play by options specialist Joe Sunderman, as well as a long-term play from John Dessauer, editor of Investor's World. Here, they each give their assessment of the stock's prospects.

Says John Dessauer, editor of Investor’s World, "Scientific Atlanta (SFA NYSE) is the leader in equipment for cable TV companies. The firm had a good third fiscal quarter. Earnings were $0.18 a share, including one-time special after-tax charges equal to $0.04 a share. The $0.22 from operations was $0.07 better than expected. For the quarter, revenues, earnings, free cash flow, and return on capital all exceeded analysts’ expectations. The revenues were $382.6 million, far better than the $355 million expected. Cash was $5.84 a share at the end of the quarter. Free cash flow was more than $1.00 a share. Earnings this fiscal year (ending June 30) are estimated to total $0.73 a share. The current earnings estimate for the new fiscal year (starting July 1) is $1.20 a share. That is likely to be revised upwards this year. The stock has been strong this year, up 33% by late April. The solid gains are likely to continue for the next couple of years. My 12-month target is $30 or better. Scientific Atlanta is a buy."

From a technical and short-term standpoint Joe Sunderman, of Schaeffer's Investment Research, says, "After a slow start since originally recommending SFA on May 23, the shares of this maker of set-top boxes for cable subscribers was able to feel the wind behind its back in recent action, as the stock gained 4% in just one day, which clearly out-performed its peer indexes. We continue to feel strongly about SFA given that the shares have been finding support at their 10-day moving average. Short sellers should be getting concerned, as the stock is moving out of a lengthy basing period. This short covering could further fuel a rally in the stock. Traders should continue to target a move to 20.72 with a stop-loss on a close below 17.90."

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