We maintain our long-term Neutral recommendation on
). The company reported better-than-expected first quarter of
2013 financial results. Both the top and the bottom line outpaced
the Zacks Consensus Estimate.
Why Keeping at Neutral?
ADTRAN has performed creditably despite a challenging business
environment. The company is facing double-edged problems: (1) the
communications equipment industry is currently going through a
volatile phase due to uneven capital spending of telecom
carriers, and (2) increasing competitive pressure within the
industry. In the reported quarter, ADTRAN stabilized its
businesses with the U.S. Tier 1 carriers, while generating
contracts from several Tier 2 carriers. The Enterprise division
also generated strong sales of IP gateway and switch
products.Looking ahead, we expect the company to benefit from
market share gain, new product offerings, solid international
sales, and growing service revenues.
Risk/Reward Almost Balanced
We believe that the organic growth for the company will be
largely based on recovery in spending pattern of tiered carriers
and the Enterprise segment, increased penetration of TA 5000,
professional services at domestic and international levels,
mobile broadband infrastructure upgrades and funds generated
through Broadband Stimulus projects. ADTRAN has declared that the
company has received orders from a Tier 1 telecom carrier for
which shipment will start from the second half of 2013.
Additionally, the company is expecting to generate revenues from
a second Tier 1 carrier in early 2014.
Nevertheless, the market for broadband access and IP
networking equipment is highly competitive. The company competes
with large and well-established networking OEMs both in the
enterprise and carrier market segments. Competition would further
increase if new companies enter the market or the existing
competitors expand their product lines. An increase in
competition will force ADTRAN to reduce its product prices and
market share. Customer concentration is another major concern for
Other Stocks to Consider
ADTRAN currently has a Zacks Rank #3 (Hold). Other stocks in
the industry that warrant considerations include
SBA Communications Corp.
). While Symmetricon currently has a Zacks Rank #1 (Strong Buy),
both Calix and SBA Communications carry a Zacks Rank #2
ADTRAN INC (ADTN): Free Stock Analysis Report
CALIX INC (CALX): Free Stock Analysis Report
SBA COMM CORP (SBAC): Free Stock Analysis
SYMMETRICOM INC (SYMM): Free Stock Analysis
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