Better Connection For Premisys?

The battered tech stocks are like a coiled spring poised to snap back, argues technology guru Mike Murphy, who is cherry-picking the disasters and getting fully invested in the vast tech universe.

One stock Murphy thinks is a screaming buy: Premisys Communications (PRMS), which hit 65 a share (or 116 times earnings) last May. It has slid since and is now at 8.

Adjusted for splits, that's where Premisys was when it went public two years ago. Momentum players, who had helped fire up the stock, bailed out when Premisys missed a quarterly estimate in July. Earnings, they noted, rose "only" 14%. The stock plunged 50% in the next three weeks.

In mid-March of this year, the stock got pounded again when Premisys warned analysts it would miss the Street's earnings estimate of 24 cents a share for the March quarter. Delays in shipments and a contract lost by a partner caused the shortfall. In two days, the stock dropped from 14 to 8.

But "we think most of the damage has been done to the stock price and that a bottom has been set in the 7-to-8 range," says Murphy, editor of the California Technology Stock Letter. His target at this point: 22. He sees the company returning to annual revenue growth of 45% by next year. It expects to be back on track by the June quarter, says Murphy.

This maker of integrated-access products for telecom providers was no slouch: Revenues in fiscal 1996 rocketed to $73.9 million, up from 1995's $30.9 million. And earnings jumped from 18 cents to 64 cents a share. But this year, some analysts have turned wary, says Chuck Hill, research director at First Call, and see lower earnings: 45 cents in the year ending June 30, 1997, and 43 cents in 1998.

Premisys was a pioneer in the early '90s with its integrated multiple-access communications server (IMACS), which rolls all of the front-end and back-end connections into one box. Premisys, says Murphy, expects to sign up five major customers by the September quarter. The company sells IMACS to equipment providers such as Motorola, Rockwell International, and Unisys, which incorporate Premisys' boxes into their systems that they in turn sell to customers.

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