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Garmin Ltd. (GRMN), Verisign, Inc. (VRSN), and JDS Uniphase Corp (JDSU): 2 Tech Stocks to Buy and 1 to Avoid as Target Prices Are Lowered

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The consensus analyst decrease in price targets for a number of technology stocks is being ignored by investors. Despite a downward revision in the target price, shares of Garmin Ltd. (NASDAQ:GRMN), Verisign, Inc. (NASDAQ:VRSN), and JDS Uniphase Corp (NASDAQ:JDSU) are all up from an intermediary low reached at the beginning of May, 2013.

Company % Change in Target # Analysts Current Target Prev. Week Target Rating
GARMIN LTD (NASDAQ:GRMN) -9.04 5 $38.75 $42.60 3.231
VERISIGN INC (NASDAQ:VRSN) -3.62 5 $45.42 $47.13 3.375
JDS UNIPHASE -3.23 9 $16.25 $16.79 4.111

Data Source: Bloomberg




JDSU data by YCharts

Is a Lowered Target Price Justified?

Analysts may be reacting to the lowered outlook provided by JDS Uniphase Corp (NASDAQ:JDSU) on May 1. The weakening sentiment is in-line with the performance of its competitors. Juniper Networks reported quarterly earnings that missed on revenue and was light on guidance. AT&T reduced its capex budget for the next two years (2014 – 2015), and the company expects the current quarter to come in below the revenue consensus of $448.4 million. JDS expects sales to be about $420-$440 million.

In the March quarter, carrier customers delayed their capital expenditures, which hurt sales for communications test, measurement and optical communications equipment. GAAP earnings were mostly flat over the previous year, and sharply lower from the previous quarter:

Q3 Q2 Q3 Percentage Change
FY 2013 FY 2013 FY 2012 Q-T-Q Y-T-Y
Revenue $ 405.3 $ 429.4 $ 403.3 -5.6 0.5
Gross
margin
38.3 44 41.6 -5.7 -3.3
Operating
margin
-5.3 3.5 -1.6 -8.8 -3.7

Source: JDSU Press Release

With 235.15 million shares outstanding and $638.8 million in cash and investments, JDS has $2.72 in cash per share. Investors should note that other non-recurring charges totaled $12.9 million in the quarter, which contributed to half of the losses in the quarter.

VerisignIn the software space, Verisign, Inc. (NASDAQ:VRSN) is just 2.6% below its 52-week high. The company reported revenue of $236 million, and earnings of $0.58 per share, both beating consensus. The average target price for Verisign, Inc. (NASDAQ:VRSN) is $45.42, but shares traded recently at nearly $49.

During its conference call the company said that $844 million remains in its share repurchase program. 3 million shares were purchased by the end of the first quarter. Verisign, Inc. (NASDAQ:VRSN) has a healthy renewal rate (73.3%), though it is slightly below that of last year. Operating margins are healthy; the company guided non-GAAP operating margin to be at least 57%. This would also justify the current valuation of Verisign, Inc. (NASDAQ:VRSN), which trades at a forward P/E of 19.38. Verisign, Inc. (NASDAQ:VRSN) is also spending just $5 million in marketing for calendar 2013.

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