CommScope Skyrockets 94% in a Year: Reason to Buy COMM Stock?
Buoyed by a holistic growth model, CommScope Holding Company, Inc. COMM has surged 94.1% over the past year compared with the industry’s growth of 4.7%. It has also outperformed its peers like Bandwidth Inc. BAND and Anterix Inc. ATEX over this period.
CommScope continues to benefit from stringent cost-cutting measures and focus on core operations. The company is actively pruning its non-core businesses while focusing on inorganic growth to boost its portfolio strength and remain at the forefront of technological innovation by developing solutions to support wireline and wireless network convergence.
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COMM Reorganizes Portfolio to Fuel Growth
Early this year, CommScope completed the divestiture of its Home Networks business to Vantiva SA (formerly Technicolor SA) to focus more on core operations. In 2021, the company embarked on an initiative dubbed CommScope NEXT — a multi-faceted program to drive future growth, optimize business processes and unlock shareholder value. As part of this strategy, CommScope intended to separate its Home Networks business to create an independent publicly traded entity.
The tax-free spin-off was aimed to enable both CommScope and Home Networks to drive innovation while allowing the latter to focus more on go-to-market strategy and develop its own technologies for home and consumer products on the back of a resilient manufacturing model. The restructuring would have also provided flexibility to the Home Networks business with a dedicated research & development team that will be responsible for stimulating growth in a “Connected Home” future. With the completion of the divestiture, CommScope was able to realize this vision.
In May, CommScope strengthened its portfolio by acquiring Casa Systems' Cable Business assets. The acquisition enhanced CommScope’s market-leading position in Access Network Solutions. It bolstered its virtual CMTS (Cable Modem Termination Systems) and PON (Passive Optical Network) product offerings, bringing significant synergies to the company’s operations. This move aligned with CommScope's strategy to expand its technological capabilities and customer base, especially in the domain of cloud-native network solutions.
The enhanced product offerings will enable CommScope to provide more comprehensive solutions, catering to the growing demand for high-speed, reliable network connectivity. By offering a seamless integration of CMTS products, CommScope aims to enhance customer satisfaction and loyalty. The expected synergies and expanded product offerings underscore the strategic value of this transaction, marking a significant milestone in CommScope's ongoing growth and innovation journey.
COMM to Boost Network With AI-Driven Solution
CommScope recently collaborated with Nokia Corporation NOK to develop a cutting-edge AI-driven solution for deploying seamless in-building and campus-wide connectivity to cater to the needs of the former’s diverse industry verticals. Per the partnership, CommScope will combine RUCKUS Network’s industry-leading enterprise Wi-Fi and switching solutions with Nokia’s best-in-class fiber-based Optical LAN to create an integrated infrastructure.
Validated by several Tier 1 service providers worldwide, this solution is poised to support a broad array of intensive bandwidth and latency-sensitive applications, including augmented reality, virtual reality, extended reality, 4K video streaming, conferencing and online gaming. It will also likely support a plethora of IoT devices across diverse sectors such as hospitality, multi-dwelling units, large public venues and education.
COMM Dented by Margin Woes
Despite solid portfolio strength, CommScope's net sales are adversely impacted by prevailing macroeconomic turmoil. The CCS segment is facing challenges due to reduced demand for network cable and connectivity, as well as building and data center connectivity. Sales decline of Base Station Antennas and Heliax products are affecting OWN segment revenues. Low order rates stemming from high inventory levels, low capex spending from service providers and macroeconomic headwinds are impeding the CCS and OWN segments’ revenues. Inventory adjustments and project delays are also negatively impacting the ANS vertical.
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Estimate Revision Trend of COMM
Earnings estimates for CommScope for 2024 have moved down 40.2% to 98 cents over the past year, while the same for 2025 has decreased 47.3% to $1.06. The negative estimate revision depicts bearish sentiments about the stock’s growth potential.
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End Note
With operators moving toward converged or multi-use network structures, combining voice, video and data communications into a single network, CommScope is developing solutions designed to support wireline and wireless network convergence, which will be essential for the success of 5G technology. Its product portfolio has been specifically designed to help global service providers efficiently deploy fiber networks. This augurs well for its long-term growth prospects. The company also continues to be one of the leading suppliers of intelligent antenna platforms for FirstNet deployments.
However, margin pressures and low order rates stemming from high inventory levels have eroded its profitability. The downtrend in estimate revisions further portrays skepticism about the stock’s growth potential. With a Zacks Rank #3 (Hold), CommScope appears to be treading in the middle of the road, and investors could be better off if they trade with caution. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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