Although recent weeks have delivered a spike in share price - albeit temporary - Avici Systems (AVCI) is currently rated a Sell by Zacks senior technology analyst Steve Biggs, CFA. To find out why, we checked his most recent report:
Following a review of strategic alternatives, Avici Systems has decided to exit the router business that currently contributes over 90% of revenue and focus on its new software initiative, Soapstone Networks. We believe that the company had limited alternatives, and was not an attractive acquisition target given the state of its router business.
The company will distribute approximately $28 million to shareholders in the form of a special $2 dividend. We estimate that in six months' time, AVCI will have $3/share in cash and that Soapstone is worth about $1 per share, resulting in a $4 price target and Sell rating.
Although recent results have been impressive, with the exiting of the equipment business that has been responsible for these strong results, the stock should begin to trade on its current cash position, plus the value of a call option for the Soapstone business. Currently, Avici has $4.64 in cash per share on its balance sheet. Given that a company in the early stages that Soapstone is in, we believe a call option would be worth less than $1 at this point.
Read the analyst report on AVCI