Arris Downgraded to Neutral

We are downgrading our recommendation for Arris Group Inc. (ARRS - Analyst Report) to Neutral, which means the stock will perform mostly in line with the broader market. The stock price moved up nearly 86% in the last year and is currently trading at the high-end of its 52-week price range. We believe at this valuation level, there is little room for any above-market gain.

Arris' fourth-quarter 2009 EPS was well above the Zacks Consensus Estimate. However, the first-quarter 2010 financial outlook given by management was tepid, primarily due to weak seasonality. Management indicated that sales towards its biggest customer, Comcast Corp. (CMCSA - Analyst Report), will decline in 2010 compared to the previous year.

Comcast has already completed the initial roll-out of DOCSIS 3.0 technology. Arris was the main equipment supplier. Although Arris announced that this loss will be more than covered from sales to other customers like Time Warner Cable Inc. (TWC - Analyst Report), we remain skeptical regarding the company's full year 2010 revenue growth.

Arris is solely dependent on cable operators for its revenue. The lack of industry diversification may result in limited business prospects since potential shifts in industry dynamics may adversely impact cable TV service providers. This is evident from the fact that large telecom carriers in the U.S. are increasingly expanding their high-speed fiber based network, while satellite TV providers are also upgrading their networks.

Read the full analyst report on ARRS

Read the full analyst report on CMCSA

Read the full analyst report on TWC