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3 Networking Stocks to Watch for From a Thriving Industry
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Increasing focus on cloud computing, network security, big data and cloud storage is expected to boost the performance of the Zacks Computer - Networking industry participants. Accelerated deployment of 5G is driving the proliferation of the Internet of Things (IoT), Advanced Driver Assistance Systems (ADAS), Augmented Reality/Virtual Reality (AR/VR) devices and 5G smartphones, calling for solid networking infrastructure. This boosted the demand for networking products, favoring the prospects of prominent industry players like Extreme Networks (EXTR - Free Report) , NetScout Systems (NTCT - Free Report) and NETGEAR (NTGR - Free Report) . However, negative impacts stemming from the lingering supply chain disruptions and component shortages are likely to be a concern in the near term. Geopolitical instability in Europe due to the Ukraine war, weak global economic conditions and rising inflation and crude prices are likely to act as additional headwinds.
Industry Description
The Zacks Computer - Networking industry comprises companies that offer networking and Internet-connected products, including wireless (WiFi and Long-Term Evolution or LTE), Ethernet and powerline, with a focus on dependability and ease of use. The products are available in numerous configurations to cater to changing requirements of consumers in each geographic territory where it operates for smooth network connectivity and broadband access. Some industry players also provide mission-critical IoT solutions and network security services to help clients build next-generation connected products and implement and manage critical communications infrastructures in demanding environments with enhanced levels of safety. Focus on developing IoT sensors, drones and wearables amid increasing demand for cloud computing-based contact tracing applications is driving the industry.
4 Trends Influencing the Industry's Future
Rapid Deployment of 5G to Boost Growth Prospects: The adoption of a hybrid/flexible work model have triggered demand for network-intensive applications like video conferencing and cloud services. This is anticipated to accelerate 5G deployment through 2023 and beyond. The impending 5G boom will likely propel the industry to newer heights. The success of 5G technology hinges on substantial investments to upgrade infrastructure in the core fiber backhaul network to support growth in data services. More efforts to develop smart connected homes, hospitals, factories, buildings and cities and self-driving vehicles bode well for industry players. These firms are investing heavily in LTE, broadband and fiber to provide additional capacity and improve Internet and wireless networks. These initiatives hold promise.
The Uptick in Wi-Fi 6 Networking to Drive Momentum: Brisk technological advancement, dynamic products, high-speed connectivity, low latency and evolving industry standards define the Computer Networking industry. The growing clout of the latest Wi-Fi 6-compliant residential gateways, Wi-Fi routers, set-top boxes and wireless range extenders is a testament to the same. Wi-Fi 6 — the latest 802.11ax wireless standard — is estimated to offer 30% faster network speed over 802.11ac (Wi-Fi 5). This is anticipated to bolster the industry participants’ top line.
Innovation in Networking Technologies is Opening New Business Avenues: Growing clout of Smart Home and Internet-connected products such as Smart TVs, game consoles, High Definition (HD) streaming players, security cameras, thermostats and smoke detectors continue to drive innovations in networking. The rapid proliferation of IoT, the increasing popularity of smart connected devices and the growing adoption of cloud computing in network security are fueling the demand for an efficient network support infrastructure. The advancements in AI and ML and the high adoption of cloud applications hold immense potential for companies in the industry. Enterprises are striving to manage fixed and wireless devices in a secured infrastructure. To address the demand, industry firms are driving innovation in networking technologies, including network virtualization and Software-Defined Networking (SDN), which favors growth prospects.
Increase in IT Spending Amid Economic Turmoil Bodes Well: Per a Gartner report, worldwide IT spending is expected to increase 5.5% in 2023 from 2022 levels and reach around $4.6 trillion. The report added that despite macroeconomic headwinds, enterprises are increasing spending on digital business initiatives, which bodes well for industry participants. The software segment is likely to witness a double-digit growth in the current year, stated Gartner. However, consumers are deferring spending on the purchase of devices, which will likely affect the IT spending growth to an extent in 2023. Gartner expects devices segment to decline nearly 5% in 2023.
Zacks Industry Rank Indicates Bright Near-Term Prospects
The Zacks Computer - Networking Industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank of 25, positioning it in the top 10% of more than 251 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider for your portfolio, considering bright prospects, let us look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms S&P 500 but Lags Sector
The Zacks Computer – Networking industry has outperformed the S&P 500 composite over the past year but lags the broader Zacks Computer and Technology sector.
The industry is up 11.9% over this period compared with the broader sector’s gain of 13.4%. The S&P 500 has gained 8% over the same time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings ratio (P/E), which is a common multiple for valuing Computer – Networking stocks, we see that the industry is currently trading at 13.82X compared with the S&P 500’s 18.71X. It is also below the sector’s forward-12-month P/E of 24.25X.
In the past five years, the industry has traded as high as 20.33X and as low as 12.56X, with media being at 15.81X, as the charts below show.
Forward 12-Month P/E Ratio
Forward 12-Month P/E Ratio
3 Computer - Networking Stocks to Keep an Eye on
NetScout Systems: The Westford, MA-based company provides performance management, cybersecurity and DDoS protection solutions. Continued momentum in Service Assurance and Cybersecurity product lines bodes well. In the last reported quarter, the company’s revenues were up 8.8% year over year to $208.1 million.
The company is focused on advancing several technology initiatives, including Dynamic DDoS and Mobile DDoS security as well as Omnis Cybersecurity solutions. For fiscal 2024, the company expects revenues (GAAP and Non-GAAP) in the range of $915-$945 million.
Extreme Networks: Based in Morrisville, NC, Extreme Networks provides next-generation switching solutions that cater to the increasing requirements of enterprise local area networks or LAN, internet service and content providers.
Higher deployment of 5G base stations on accelerated demand for 5G networking is expected to boost growth prospects. Acquisitions like Ipanema bode well in the long haul. The company recently unveiled ExtremeCloud Edge platform that covers public to private to edge cloud deployments and aids customers in lowering operating costs related to management of many cloud platforms.
Extreme Networks carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for fiscal 2023 is pegged at $1.08 cents per share, indicating an increase of 5.9% year over year. Shares have increased 98.3% in the past year.
Price and Consensus: EXTR
NETGEAR: Headquartered in San Jose, CA, NETGEAR is a global telecommunications firm that offers innovative networking and Internet connected products for seamless networking, broadband access and network connectivity.
The company’s performance is being cushioned by robust demand for premium Wi-Fi mesh systems, 5G mobile hotspots and ProAV-managed switched products amid macroeconomic turbulence. It had 772,000 paid service subscribers at the end of the last reported quarter.
Frequent product launches, like Nighthawk M6 Pro 5G mobile hotspots, are expected to boost its CHP business. For the second quarter of 2023, NETGEAR anticipates net revenues of $150-$165 million as the company is optimistic that SMB and the CHP service provider channel will gain momentum amid volatile macroeconomic conditions.
At present, NETGEAR carries a Zacks Rank #2. The Zacks Consensus Estimate for 2023 earnings is pegged at 61 cents per share, indicating an increase of 5.2% year over year.
Price and Consensus: NTGR
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3 Networking Stocks to Watch for From a Thriving Industry
Increasing focus on cloud computing, network security, big data and cloud storage is expected to boost the performance of the Zacks Computer - Networking industry participants. Accelerated deployment of 5G is driving the proliferation of the Internet of Things (IoT), Advanced Driver Assistance Systems (ADAS), Augmented Reality/Virtual Reality (AR/VR) devices and 5G smartphones, calling for solid networking infrastructure. This boosted the demand for networking products, favoring the prospects of prominent industry players like Extreme Networks (EXTR - Free Report) , NetScout Systems (NTCT - Free Report) and NETGEAR (NTGR - Free Report) . However, negative impacts stemming from the lingering supply chain disruptions and component shortages are likely to be a concern in the near term. Geopolitical instability in Europe due to the Ukraine war, weak global economic conditions and rising inflation and crude prices are likely to act as additional headwinds.
Industry Description
The Zacks Computer - Networking industry comprises companies that offer networking and Internet-connected products, including wireless (WiFi and Long-Term Evolution or LTE), Ethernet and powerline, with a focus on dependability and ease of use. The products are available in numerous configurations to cater to changing requirements of consumers in each geographic territory where it operates for smooth network connectivity and broadband access. Some industry players also provide mission-critical IoT solutions and network security services to help clients build next-generation connected products and implement and manage critical communications infrastructures in demanding environments with enhanced levels of safety. Focus on developing IoT sensors, drones and wearables amid increasing demand for cloud computing-based contact tracing applications is driving the industry.
4 Trends Influencing the Industry's Future
Rapid Deployment of 5G to Boost Growth Prospects: The adoption of a hybrid/flexible work model have triggered demand for network-intensive applications like video conferencing and cloud services. This is anticipated to accelerate 5G deployment through 2023 and beyond. The impending 5G boom will likely propel the industry to newer heights. The success of 5G technology hinges on substantial investments to upgrade infrastructure in the core fiber backhaul network to support growth in data services. More efforts to develop smart connected homes, hospitals, factories, buildings and cities and self-driving vehicles bode well for industry players. These firms are investing heavily in LTE, broadband and fiber to provide additional capacity and improve Internet and wireless networks. These initiatives hold promise.
The Uptick in Wi-Fi 6 Networking to Drive Momentum: Brisk technological advancement, dynamic products, high-speed connectivity, low latency and evolving industry standards define the Computer Networking industry. The growing clout of the latest Wi-Fi 6-compliant residential gateways, Wi-Fi routers, set-top boxes and wireless range extenders is a testament to the same. Wi-Fi 6 — the latest 802.11ax wireless standard — is estimated to offer 30% faster network speed over 802.11ac (Wi-Fi 5). This is anticipated to bolster the industry participants’ top line.
Innovation in Networking Technologies is Opening New Business Avenues: Growing clout of Smart Home and Internet-connected products such as Smart TVs, game consoles, High Definition (HD) streaming players, security cameras, thermostats and smoke detectors continue to drive innovations in networking. The rapid proliferation of IoT, the increasing popularity of smart connected devices and the growing adoption of cloud computing in network security are fueling the demand for an efficient network support infrastructure. The advancements in AI and ML and the high adoption of cloud applications hold immense potential for companies in the industry. Enterprises are striving to manage fixed and wireless devices in a secured infrastructure. To address the demand, industry firms are driving innovation in networking technologies, including network virtualization and Software-Defined Networking (SDN), which favors growth prospects.
Increase in IT Spending Amid Economic Turmoil Bodes Well: Per a Gartner report, worldwide IT spending is expected to increase 5.5% in 2023 from 2022 levels and reach around $4.6 trillion. The report added that despite macroeconomic headwinds, enterprises are increasing spending on digital business initiatives, which bodes well for industry participants. The software segment is likely to witness a double-digit growth in the current year, stated Gartner. However, consumers are deferring spending on the purchase of devices, which will likely affect the IT spending growth to an extent in 2023. Gartner expects devices segment to decline nearly 5% in 2023.
Zacks Industry Rank Indicates Bright Near-Term Prospects
The Zacks Computer - Networking Industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank of 25, positioning it in the top 10% of more than 251 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider for your portfolio, considering bright prospects, let us look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms S&P 500 but Lags Sector
The Zacks Computer – Networking industry has outperformed the S&P 500 composite over the past year but lags the broader Zacks Computer and Technology sector.
The industry is up 11.9% over this period compared with the broader sector’s gain of 13.4%. The S&P 500 has gained 8% over the same time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings ratio (P/E), which is a common multiple for valuing Computer – Networking stocks, we see that the industry is currently trading at 13.82X compared with the S&P 500’s 18.71X. It is also below the sector’s forward-12-month P/E of 24.25X.
In the past five years, the industry has traded as high as 20.33X and as low as 12.56X, with media being at 15.81X, as the charts below show.
Forward 12-Month P/E Ratio
Forward 12-Month P/E Ratio
3 Computer - Networking Stocks to Keep an Eye on
NetScout Systems: The Westford, MA-based company provides performance management, cybersecurity and DDoS protection solutions. Continued momentum in Service Assurance and Cybersecurity product lines bodes well. In the last reported quarter, the company’s revenues were up 8.8% year over year to $208.1 million.
The company is focused on advancing several technology initiatives, including Dynamic DDoS and Mobile DDoS security as well as Omnis Cybersecurity solutions. For fiscal 2024, the company expects revenues (GAAP and Non-GAAP) in the range of $915-$945 million.
NetScout sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here. . The Zacks Consensus Estimate for fiscal 2024 earnings for the company improved 13.6% to $2.25 per share in the past 60 days.
Price and Consensus: NTCT
Extreme Networks: Based in Morrisville, NC, Extreme Networks provides next-generation switching solutions that cater to the increasing requirements of enterprise local area networks or LAN, internet service and content providers.
Higher deployment of 5G base stations on accelerated demand for 5G networking is expected to boost growth prospects. Acquisitions like Ipanema bode well in the long haul. The company recently unveiled ExtremeCloud Edge platform that covers public to private to edge cloud deployments and aids customers in lowering operating costs related to management of many cloud platforms.
Extreme Networks carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for fiscal 2023 is pegged at $1.08 cents per share, indicating an increase of 5.9% year over year. Shares have increased 98.3% in the past year.
Price and Consensus: EXTR
The company’s performance is being cushioned by robust demand for premium Wi-Fi mesh systems, 5G mobile hotspots and ProAV-managed switched products amid macroeconomic turbulence. It had 772,000 paid service subscribers at the end of the last reported quarter.
Frequent product launches, like Nighthawk M6 Pro 5G mobile hotspots, are expected to boost its CHP business. For the second quarter of 2023, NETGEAR anticipates net revenues of $150-$165 million as the company is optimistic that SMB and the CHP service provider channel will gain momentum amid volatile macroeconomic conditions.
At present, NETGEAR carries a Zacks Rank #2. The Zacks Consensus Estimate for 2023 earnings is pegged at 61 cents per share, indicating an increase of 5.2% year over year.
Price and Consensus: NTGR