We are upgrading our recommendation on
) to Outperform ahead of its second quarter of 2013 financial
results, which will be released tomorrow before the opening
Why the Upgrade?
ADTRAN continues to perform 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
In the last 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
complemented the effort with strong sales of IP gateway and
Looking ahead, we expect the company to benefit from market
share gain, new product offerings, solid international sales and
growing service revenues. We believe that free cash flow will
also remain steady in the near future.
Apart from these, the company has also registered significant
growth in its professional service activities that deploy the
Total Access System components in telecommunication companies.
The company has projected that professional services capabilities
will remain accretive as both domestic and international carriers
seek cost-effective methods to accelerate network
ADTRAN is also moving into virtual wireless LAN solutions with
the buyout of Bluesocket, a privately held U.S. company that
specializes in wireless network solutions with virtual control
Other Stocks to Consider
ADTRAN currently has a Zacks Rank #2 (Buy). Apart from ADTRAN,
other stocks in the industry which are also performing well
Crown Castle International Corp.
). All these stocks currently carry a Zacks Rank #2 (Buy).
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