Ulticom Showing Some Signs Of Weakness

Signaling software firm Ulticom is holding up fairly well. And in this environment for technology stocks, that borders on high praise.

Ulticom reported earnings last night – real earnings – of 10 cents a share, meeting estimates. Revenues of $17.9 million came in a hair shy of $18 million estimates.

The company guided third quarter revenue estimates down from $19 million to $18.6 million, but maintained earnings estimates, and said it is experiencing less predictability from customers than it has seen in the past. Throw in some concern about R&D spending and an analyst downgrade, and the stock is trading down about $1 this morning, to 16.50-16.75.

Ulticom got whacked last month when parent company Comverse Technology (which reports earnings tonight) warned. However, rather than making ULCM stock a bargain, the drop just made the company’s valuation more realistic.

ULCM trades at about 35 times this year’s estimates. That makes the company slightly undervalued compared to its long-term projected growth rate of 40%, but it’s anyone’s guess if the company can achieve that target in the current telecom spending environment. And there was just enough deterioration in the quality of the company’s earnings to cause Dain Rauscher Wessels to downgrade the stock from Buy to Neutral while cutting 2001 earnings estimates by just a penny, from 49 cents to 48 cents.

A look at the stock’s chart (see below) reveals a surprising amount of weakness. A number of indicators, such as MACD and stochastics, have been on buy signals for some time, but the stock has gone nowhere. A look at ADX, the first indicator, is interesting: selling pressure (the red line) has barely come down, while buying pressure (the green line) remains low. Critical support is 16, and the resistance level to beat is 18.

Ulticom may be holding up better than the vast majority of telecom-related stocks. That makes the company worth watching for an eventual rebound in telecom spending. But in the meantime, fundamental and technical analysis suggests the potential for further weakness.

Also this morning, Openwave scored a coup by hiring former Cisco executive Kevin Kennedy as COO, joining former Cisco heir apparent Don Listwin at Openwave.

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