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ADTRAN Aims to Curb Margin Woes With Solid Product Portfolio

On Nov 12, we issued an updated research report on ADTRAN, Inc. ADTN — one of the leading providers of networking and communications equipment in the United States.

ADTRAN reported relatively modest third-quarter 2018 results with both the top line and bottom line deteriorating year over year. Total revenues for the quarter declined to $140.3 million from $185.1 million due to lower shipments to a Tier-1 customer. Net income for the quarter was $7.6 million or 16 cents per share compared with $15.9 million or 33 cents per share in the year-ago quarter. The year-over-year decrease in GAAP earnings was primarily due to decline in revenues.

Quarterly GAAP gross margin came in at 41.6% compared with 46.7% in the prior-year quarter due to decreased volume of domestic business and higher weightage of international business. Operating loss in the reported quarter totaled $2.2 million against operating income of $18.2 million a year ago, largely due to lower revenues.

ADTRAN expects to deter the margin woes through an improved product portfolio. The company is focused on being a top global supplier of Access infrastructure and related value-added solutions from the Cloud Edge to the Subscriber Edge through a broad portfolio of flexible hardware and software network solutions. These products enable customers to transition to the fully converged, scalable, highly automated, cloud-controlled voice, data, Internet and video network of the future.

In addition, ADTRAN has enabled service providers to leverage its Mosaic Software-Defined Access architecture that combines modern Web-scale technologies with open-source platforms to facilitate rapid innovation in multi-technology, multi-vendor environments. The Mosaic cloud platform and Mosaic OS, combined with programmable network elements, provide operators with a highly agile, open-services architecture. This allows operators to better combat Web-scale competition by reducing the time and cost to launch new service, technologies and best-of-breed suppliers as they strive to reduce operational costs while creating and deploying differentiated product offerings.

ADTRAN’s products and services provide solutions supporting fiber- and copper-based infrastructures and a growing number of wireless and coax-based solutions, lowering the overall cost to deploy advanced services across a wide range of applications. In order to complement the Network Solutions portfolio and enable customers to accelerate time to market, reduce costs and improve customer satisfaction, ADTRAN offers a complete portfolio of maintenance, turnkey network implementation, maintenance, solutions integration and managed services. The company’s network implementation services offer a full spectrum of services related to engineering (pre-construction), installation/turn-up (construction) and provisioning (post-construction), partnering with customers to tailor a program to each specific service delivery need.

Furthermore, ADTRAN’s ProCloud Wi-Fi service, which has been developed on the company’s virtual Wireless LAN, is opening up new opportunities as Valley Business Solutions is utilizing its technology on a much wider scale. Apart from these products, the company has also registered significant growth in its professional service activities that deploy the Total Access System components in telecommunication companies. ADTRAN expects solid traction for ultra broadband and Fiber-To-The-Home solutions along with SD access and EPON solutions. Its global leadership in software-defined access is likely to ensure a steady stream of revenues as it helps clients reduce cost and accelerate service delivery and deployment.

Owing to stiff competitive pressure and higher volatility, shares of the company have recorded an average loss of 4.3% in the past six months while the industry has declined 26%. Earnings estimates of the company have drastically fallen 120.2% in the past year to a loss of 19 cents.

Nevertheless, we remain impressed with the inherent growth potential of this Zacks Rank #3 (Hold) stock. Some better-ranked stocks in the broader industry are Arista Networks, Inc. ANET, Corning Incorporated GLW and Knowles Corporation KN, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Arista has a long-term earnings growth expectation of 21.2%. It beat earnings estimates in each the trailing four quarters, the average surprise being 13.4%.        
Corning has a long-term earnings growth expectation of 8.8%. It beat earnings estimates in each the trailing four quarters, the average surprise being 4.1%.  
Knowles has a long-term earnings growth expectation of 10%. It surpassed earnings estimates thrice in the trailing four quarters, the average positive surprise being 11%.

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