On Wednesday, Rosenblatt Securities adjusted its stance on Viavi Solutions (NASDAQ:VIAV), moving the rating from Buy to Neutral and setting a price target of $8.25. The firm's decision is driven by concerns over the prolonged downturn in Telecom spending, which is believed to be structural rather than a temporary cycle. Viavi Solutions, which generates over half of its revenue from Telecom sectors, is particularly vulnerable to spending patterns in Optical, Wireless, and Access markets.
The analyst noted that while there may be minor positive developments in the Access segment due to Cable upgrades and the Broadband Equity, Access, and Deployment (BEAD) program, the outlook for Optical and 5G spending in the second half of 2024 and into 2025 is cautious. Additionally, the inability of Viavi to secure key strategic acquisitions, having been outbid by competitors like Keysight for Spirent, was cited as a secondary reason for the downgrade.
Despite the downgrade, Rosenblatt Securities has not altered its earnings per share (EPS) forecasts for Viavi Solutions for fiscal years 2025 and 2026, maintaining estimates of $0.40 and $0.55 respectively. These projections remain below the consensus estimates of $0.47 and $0.63. Historically, Viavi has traded at a premium, averaging an 18x forward price-to-earnings (PE) multiple.
The new price target of $8.25 is based on a 15x multiple of the firm's fiscal year 2026 EPS estimate. This reflects a slight discount compared to the 16x median multiple of Viavi's peer group.
In other recent news, Viavi Solutions Inc. and Rohde & Schwarz have expanded their collaborative testing solutions for Open Radio Unit (O-RU). The enhanced solutions aim to assist radio manufacturers with funding opportunities from the National Telecommunications and Information Administration (NTIA). Moreover, Viavi has introduced its Automated Lab-as-a-Service for Open RAN (VALOR™), a suite of tests designed for O-RU conformance, performance, security, and subsystem interoperability.
On the financial side, Viavi's Q3 FY2024 results showed a net revenue of $246 million, aligning with the lower end of their guidance. The company's operating margin exceeded expectations at 9.3%. For the upcoming Q4, Viavi anticipates a revenue range of $246 million to $258 million, an operating margin around 10.6%, and earnings per share between $0.06 and $0.08.
These recent developments showcase Viavi's ongoing efforts to navigate a challenging market while focusing on strategic growth areas. The company's active participation in the development of Open RAN specifications and global Open RAN PlugFests, along with its robust testing solutions, underline its commitment to advancing Open Radio technology.
InvestingPro Insights
Amidst the concerns raised by Rosenblatt Securities regarding Viavi Solutions' exposure to the Telecom sector's downturn, InvestingPro data and metrics provide additional context. Viavi's market capitalization currently stands at $1.58 billion, indicating its size within the industry. Despite the challenges, Viavi's shareholder yield remains high, which could be a sign of the company's commitment to returning value to its shareholders.
The company is also expected to become profitable this year, according to analysts, which may offer some reassurance to investors looking at long-term prospects. Additionally, the company's liquid assets surpass its short-term obligations, suggesting a stable financial position for meeting immediate liabilities. However, it's worth noting that Viavi is trading near its 52-week low and has experienced a significant price drop over the last three months, with the price total return reaching -25.03% in that period.
For investors seeking a comprehensive analysis, there are over 10 additional InvestingPro Tips available, which could provide deeper insights into Viavi's financial health and market position. Interested readers can explore these tips and take advantage of the real-time metrics by using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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