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ADTRAN Riding High on Demand Pickup Despite Margin Woes

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On Sep 24, we issued an updated research report on ADTRAN, Inc. (ADTN - Free Report) , one of the leading providers of networking and communications equipment in the United States.

ADTRAN 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.

The company has enabled service providers to leverage the ADTRAN 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 on-board 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 to 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. Moving into the second half of 2018, ADTRAN expects solid traction in its domestic markets for ultra broadband and Fiber-To-The-Home solutions along with SD access and EPON solutions. The company also anticipates a pickup in cap spending in Tier-1, Tier-2 and regional service provider market segments. ADTRAN’s 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.

However, stiff competition from other established players in the market erode the profitability of the company. Consumer acceptance of alternative communications technologies such as coaxial cable through cable/MSOs and cellular-based wireless services further strain margins. High technological obsolescence further increases operating costs with continuous investments in R&D efforts.

Owing to stiff competitive pressure, shares of the company have recorded an average decline of 17.7% in the past year while the industry has rallied 0.6%. Earnings estimates of the company have drastically fallen 128.7% in the past year to a loss of 31 cents per share.



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 Ribbon Communications Inc. (RBBN - Free Report) , sporting a Zacks Rank #1 (Strong Buy) and Clearfield, Inc. (CLFD - Free Report) and QUALCOMM Incorporated (QCOM - Free Report) , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ribbon Communications has a long-term earnings growth expectation of 12%. It delivered an average positive earnings surprise of 168.1% in the trailing four quarters.

Clearfield delivered an average positive earnings surprise of 52.8% in the trailing four quarters.

Qualcomm has a long-term earnings growth expectation of 10.9%. It delivered an average positive earnings surprise of 19.8% in the trailing four quarters.

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