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CommScope (COMM) to Separate Home Networks Arm, Shares Rally

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CommScope Holding Company, Inc. (COMM - Free Report) recently announced that it intends to separate its Home Networks business to create an independent publicly traded entity. The tax-free spin-off is part of CommScope NEXT strategy, a long-term growth strategy that focuses on eliminating redundant processes, and non-value-added complexity and costs to bolster business optimization.

The initiative is specifically designed to improve channel relationships and develop avant-garde technologies to pave a path toward value creation and profitable growth. Apparently, the segment did not get sufficient capital and recognition to tap lucrative opportunities. Hence, the planned spin-off is expected to not only boost future revenues on the back of cost-reduction efforts but also optimize the business portfolio with right investment amid an evolving marketplace. Following the announcement, CommScope’s shares gained 6% to close at $16.35 as of Apr 8.

The spin-off will enable both CommScope and Home Networks to drive innovation while enabling the latter to focus more on go-to-market strategy and develop technologies for enhanced home and consumer products on the back of a resilient manufacturing model. The restructuring will also provide enough flexibility to Home Networks business with a dedicated research & development team that will be responsible for stimulating growth in a “Connected Home” future.

It is worth mentioning that the entities are sparing no efforts to reduce operating costs and inoculate financial flexibility in business by targeting money-spinning investment opportunities for future margin expansion. This will further help in optimizing the overall cost structure and unlock greater value for customers in the long run. As part of the spin-off, CommScope expects that its shareholders will be entitled to own the entire stock of Home Networks.

Post the separation, CommScope will have three business segments — Broadband Networks, Venue and Campus Networks and Outdoor Wireless Networks. This will enable the Hickory, NC-based network infrastructure provider to expand its fiber capacity and deliver innovative solutions required for network convergence globally. Moreover, the spin-off is expected to offset Home Networks’ adjusted EBITDA and create additional savings, which can be leveraged by the segment to enhance its business roadmap.

The company believes that the spin-off will not only ensure CommScope’s competitiveness in the global market but also evoke bullish expectations among investors who are eagerly waiting to reap benefits from the much-awaited transaction. The split up, which is subjected to certain regulatory and market conditions, is anticipated to close by the end of the first quarter of 2022. Backed by such distinct strategies, the new entity is likely to emerge itself as a leader in home and consumer-oriented products, thereby witnessing healthy momentum across its broad product lines in the long haul.

CommScope currently has a Zacks Rank #3 (Hold). The stock has surged 57% compared with the industry’s growth of 61.5% in the past year.

Some better-ranked stocks in the broader industry are Ubiquiti Inc. (UI - Free Report) , Nokia Corporation (NOK - Free Report) and Sierra Wireless, Inc. (SWIR - Free Report) . While Ubiquiti sports a Zacks Rank #1 (Strong Buy), Nokia and Sierra Wireless carry a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ubiquiti delivered a trailing four-quarter earnings surprise of 37.1%, on average.

Nokia delivered a trailing four-quarter earnings surprise of 40.2%, on average.

Sierra Wireless has a long-term earnings growth expectation of 12.5%.

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