Anaren Faces Near-Term Challenges

Anaren, Inc. (ANEN), a leading provider of microwave components and subassemblies for the wireless and defense industries, is challenged with recent indications of cost overrun as a result of supply-chain issues and other production related conditions.

An anticipated sales decline for Anaren’s high-margin IED products, together with ongoing macro-economic downturn in the global economy, are likely to generate earnings fluctuations over the near-term. The company announced mix financial results for its fourth quarter of fiscal 2008 (ended June 30). Net income was significantly below our estimates despite a ramp-up in sales.

Anaren has a strong financial position and diversification into multiple vertical markets spread sector-specific risk during turbulent market conditions. It has a robust pipeline with a series of next-generation products diversified into six to eight product platforms. The new products are expected to be marketed starting in the second quarter of fiscal 2009.

The company is currently trading at 17.4x estimated forward earnings for fiscal 2009. This is at a premium to the S&P 500 but at a discount to the industry group average. We maintain our Hold recommendation and the same valuation target until the company shows signs of overcoming cost related issues. Our six-month target price of $12 based on a P/E multiple of 19.4x our fiscal 2009 earnings estimates.

Nalak Das contributed to the report.

Posted in Categories: Contributor, External Research, Stocks.

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