Thursday, April 7, 2011

EXFO Electro-Optical Engineering (NASDAQ: EXFO, TSE: EXF) Q2 2011 Price Target

Recent price: 8.20$
P/E Ratio: 80.79
3 Months Target Price: 11$

Company Description
Data provided by Reuters tells us that, EXFO Inc. (formerly EXFO Electro-Optical Engineering Inc.) is a provider of next-generation test and service assurance solutions for wireless and wireline network operators and equipment manufacturers. The Company offers core-to-edge solutions that assess the performance and reliability of converged, Internet protocol (IP) fixed and mobile networks. Its test and service assurance solutions are used during the life cycle of a network: research, development, manufacturing, installation, maintenance and monitoring. The Life Sciences and Industrial Division was sold to private interests in October 2010. During the fiscal year ended August 31, 2010 (fiscal 2010), the Company launched 20 new products. In September 2010, it purchased premises in Magarpatta, Pune, India. On March 12, 2010, its wholly owned subsidiary, EXFO Finland Oy, acquired 91% of the issued and outstanding common shares of NetHawk Oyj.

Confidence Margins
Strong resistance $13.19 (+61%)
Light resistance $11.45 (+40%)
Light support $14.45 (-3%)
Strong support $11 (-26%)

As it was the case for a few of the companies showcased this quarter, EXFO issued Q3 2011 guidance below analysts' estimates on a conference call held on March 31st 2011. This sent the stock spiraling down almost 30%. This provides investors with a fair entry point for the coming quarter

Entry strategy
For the cautious investor:
Buy the stock for 9$ or less.

For the risk-taking trader:
As the company does not have any options outstanding, a way for the risk-taking investor to generate excess returns, he would have to leverage his position on margin. Keep in mind however that leverage is very risky.

Exit Strategy
For the cautious investor:
Sell when the stock reaches 11$, or keep it until 13$ if you are more bullish in your own analysis. It is highly recommended to keep the position on check if it goes sour.

For the risk-taking trader:
As for the cautious investor, sell when the stock reaches 11$.

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