We maintain our Hold recommendation on Bookham, Inc. (BKHM), a leading supplier of optical component solution for the telecommunications market. The company reported Q3 revenues of $59.7 million, up 1.4% quarter over quarter and 33% year over year. GAAP gross margin improved to 22.4% from 14.6% generated in Q3:FY07 but was slightly down from 22.7% recorded in the last quarter.
Going forward, the management expects to report revenues between $58 million and $63 million in the fourth quarter. Bookham has developed a diverse portfolio of products and increased its manufacturing expertise through a focused acquisition strategy and internal development effort.
But the company has been posting losses ever since its inception. Although the management has been taking steps to reduce costs and achieve profitability, the company has yet to come out of the red. Another matter of concern for the company is that it generates a significant portion of its revenues from a limited number of customers.
Although it appears that the optical component industry is back on track, companies in the sector are still struggling to establish their viability. We believe BKHM will outpace the industry and the company's valuation multiple will continue to expand.
Our sales growth assumption of BKHM hinges on the recovery of the telecom industry. Our price target of $2.50 is based on roughly 1.1x FY2008 sales and 0.9x FY2009 sales, whereas some of its peers are trading close to 1.4x, meaning there is moderate upside for BKHM even if it reaches our price target.
Read the full analyst report on BKHM
Get real-time market insights and profitable stock recommendations from the team of analysts at Zacks Equity Research. See all todays Analyst Blog entries on Zacks.com.