MRV Communications Inc. is poised to get a lot more attention from Wall Street.
Not that the Chatsworth-based fiber-optic company is out of favor with investors far from it. MRV has become more than just a manufacturer of high-end fiber optic products. It has evolved into something of an incubator in the fiber-optic market, acquiring companies, reorganizing them, and positioning them to go public.
MRV’s stock did take a hit last week amid a general Nasdaq sell-off, falling to around $69 a share from the $80 range the previous week. But it’s in a whole different orbit than its 52-week low of $9. And there are analysts who are predicting the stock price will double in the next year or so.
“We’re maintaining a strong ‘buy’ (recommendation on the stock),” said Chet White, an analyst with First Security Van Kasper. “We have a price target of $158 within the next 12 to 18 months.”
But the company has remained pretty much off the Wall Street radar screen until recently. Only three analysts cover MRV, despite its astonishing growth. It posted revenues of $288.5 million in 1999, up more than 600 percent from revenues of $39.2 million in 1995. The growth has come at the expense of profit.
For the second quarter ended June 30, MRV posted a net loss of $27.8 million (44 cents per diluted share), vs. a profit of $530,000 (1 cent) during the same period a year ago. Revenue was $73.9 million vs. $73.3 million.
One of the reasons behind MRV’s high share price is the upcoming initial public offering of its wholly owned Luminent Inc. unit, which makes components for telecommunications equipment manufacturers. Luminent is the amalgamation of three recent Taiwanese acquisitions.
The IPO looms as valuations of fiber-optic component manufacturers has skyrocketed, led by companies such as JDS Uniphase Corp., which lost $900 million in its most recent fiscal year but nevertheless has a market cap of more than $5 billion.
The growth of the Internet has created a huge demand for fiber-optic components that is outstripping supply. Sales of these parts is expected to increase by more than 75 percent this year, to around $3 billion. And MRV is at the forefront of the industry.
“They are one of the biggest fiber-optic manufacturers for the last mile,” the components needed to link fiber-optic cables into consumer homes, said Stewart Kalter, director of research at Global Capital Markets. “That’s the biggest market.”
Kalter estimates the total fiber-optic market will grow from the current $7 billion in annual sales to $23 billion in 2003.
MRV plans to take five of its subsidiaries public within the next year and a half, issuing about 20 percent of each company’s stock. Luminent is expected to raise about $200 million in its IPO, and once that is completed, MRV’s Optical Access Inc. unit is next in line, probably by the end of the year, according to MRV Chief Executive Noam Lotan.
“Our acquisition strategy is aimed to create and manage growth opportunities in optical technology and ultimately monetize them,” he said. “We value technology and intellectual property very much. Our acquisitions have been directed to strengthen our pre-IPO entities.”
Restricted by the pre-IPO “quiet period” imposed by the Securities and Exchange Commission that forbids forward-looking statements, Lotan nevertheless made it clear that MRV is optimistic about the IPO market despite last spring’s downturn in technology stocks, and last week’s volatility.
“We anticipate additional filings in the next six to eight months,” he said, naming Israel-based Charlotte’s Web Networks, which develops routing technology for next-generation networks, as one possibility.
He describes Charlotte’s Web, in which MRV owns slightly more than a 50 percent equity stake, as “very ambitious” and says it is currently doubling its employees from 80 to 160 and opening offices in Massachusetts. MRV is heavily involved in Israel’s technology boom, having bought four companies there, started two others and invested in one more.
