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Don't Try to Catch a Falling Knife: Sell ARRIS International
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On Apr 3, 2017, we issued an updated research report on ARRIS International plc . Evidently, shares of this Suwanee, GA-based company underperformed the Zacks categorized Communication- Components industry over the last three months. Plagued by headwinds, shares of ARRIScontracted 16.6%, while the industry gained 8.3% during the period.
Disappointing First-quarter and Full-year 2017 Views
Even though the company reported better-than-expected earnings and revenues in the fourth quarter of 2016, the stock plunged almost 15% following the earnings report on Feb 22. In fact, the lackluster guidance issued for first-quarter 2017 is the primary reason for the share price depreciation. Nevertheless, ARRIS expects earnings (adjusted) in the band of $0.36–$0.40 in the first quarter of 2017. Also, revenues are projected to be in the band of $1.44–$1.49 billion. In the first quarter of 2016, ARRIS had reported earnings of $0.41 per share on revenues of $1.61 billion.
Furthermore, the company issued below-par earnings and revenue views for full-year 2017 at its recently held investor day. ARRIS stated earnings (adjusted) in the band of $2.40–$2.60, which is below the 2016 figure of $2.86 per share. In addition, it anticipated revenues in the band of $6.6–$6.8 billion, which is too below the 2016 figure of $6.86 billion.
Earnings Estimates Head South
Following the disappointing guidance issued by the company for the first quarter, the Zacks Consensus Estimate for the first quarter has plummeted almost 48% to $0.32 per share, over the last 60 days.
Even for full-year 2017, the Zacks Consensus Estimate is pegged at $2.24 per share, down 23.5% over the last 60 days. In fact, full-year earnings are projected to contract over 11% on a year-over-year basis, which compares unfavorably with the industry’s growth estimate of 13.1%.
Leverage
In fact, ARRIS is a highly-leveraged company, which is evident from the fact that the ratio of its long-term debt-to-equity (expressed as a percentage) is currently over 67.6%. This compares unfavorably to the figure of 22.8% for the Zacks categorized Communications Components industry.
The company exited 2016 with cash resources of approximately $1.107 billion. Long-term debt & financing lease obligations (net of current portion) was $2,180 million compared with $1,496.3 million at end of 2015.
Other Headwinds
Customer concentration remains high for ARRIS with a few customers accounting for a significant portion of its top line. Hence, loss of any of these customers will severely impact the company’s business. Moreover, as the company operates globally, it is significantly exposed to risks pertaining to foreign currency movements.
In Conclusion
Taking into account the above-mentioned headwinds and the unfavorable readings, we advise investors to get rid of the stock at the moment. Further, the company’s Zacks Rank #5 (Strong Sell) suggests the same.
Stocks to Consider
With ARRIS International disappointing, investors can look at some better-ranked stocks in the broader Computer and Technology sector that include Arista Networks (ANET - Free Report) , Zendesk, Inc. and Square, Inc. (SQ - Free Report) . All three stocks carry a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Arista Networks has an earnings growth expectation of 19.7% over the next three to five years.
Zendesk has an earnings growth expectation of 26.24% over the next three to five years.
Square, Inc. has an earnings growth expectation of 22.5% over the next three to five years.
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Don't Try to Catch a Falling Knife: Sell ARRIS International
On Apr 3, 2017, we issued an updated research report on ARRIS International plc . Evidently, shares of this Suwanee, GA-based company underperformed the Zacks categorized Communication- Components industry over the last three months. Plagued by headwinds, shares of ARRIS contracted 16.6%, while the industry gained 8.3% during the period.
Disappointing First-quarter and Full-year 2017 Views
Even though the company reported better-than-expected earnings and revenues in the fourth quarter of 2016, the stock plunged almost 15% following the earnings report on Feb 22. In fact, the lackluster guidance issued for first-quarter 2017 is the primary reason for the share price depreciation. Nevertheless, ARRIS expects earnings (adjusted) in the band of $0.36–$0.40 in the first quarter of 2017. Also, revenues are projected to be in the band of $1.44–$1.49 billion. In the first quarter of 2016, ARRIS had reported earnings of $0.41 per share on revenues of $1.61 billion.
Furthermore, the company issued below-par earnings and revenue views for full-year 2017 at its recently held investor day. ARRIS stated earnings (adjusted) in the band of $2.40–$2.60, which is below the 2016 figure of $2.86 per share. In addition, it anticipated revenues in the band of $6.6–$6.8 billion, which is too below the 2016 figure of $6.86 billion.
Earnings Estimates Head South
Following the disappointing guidance issued by the company for the first quarter, the Zacks Consensus Estimate for the first quarter has plummeted almost 48% to $0.32 per share, over the last 60 days.
Even for full-year 2017, the Zacks Consensus Estimate is pegged at $2.24 per share, down 23.5% over the last 60 days. In fact, full-year earnings are projected to contract over 11% on a year-over-year basis, which compares unfavorably with the industry’s growth estimate of 13.1%.
Leverage
In fact, ARRIS is a highly-leveraged company, which is evident from the fact that the ratio of its long-term debt-to-equity (expressed as a percentage) is currently over 67.6%. This compares unfavorably to the figure of 22.8% for the Zacks categorized Communications Components industry.
The company exited 2016 with cash resources of approximately $1.107 billion. Long-term debt & financing lease obligations (net of current portion) was $2,180 million compared with $1,496.3 million at end of 2015.
Other Headwinds
Customer concentration remains high for ARRIS with a few customers accounting for a significant portion of its top line. Hence, loss of any of these customers will severely impact the company’s business. Moreover, as the company operates globally, it is significantly exposed to risks pertaining to foreign currency movements.
In Conclusion
Taking into account the above-mentioned headwinds and the unfavorable readings, we advise investors to get rid of the stock at the moment. Further, the company’s Zacks Rank #5 (Strong Sell) suggests the same.
Stocks to Consider
With ARRIS International disappointing, investors can look at some better-ranked stocks in the broader Computer and Technology sector that include Arista Networks (ANET - Free Report) , Zendesk, Inc. and Square, Inc. (SQ - Free Report) . All three stocks carry a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Arista Networks has an earnings growth expectation of 19.7% over the next three to five years.
Zendesk has an earnings growth expectation of 26.24% over the next three to five years.
Square, Inc. has an earnings growth expectation of 22.5% over the next three to five years.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>