Analysts' Choice: Growth Signal For Antenna Maker

1/2/2017


  Recent Price
$37
  Dividend
$0.00
  Yield
0.0%
  P/E Ratio
15
  Shares (millions)
197
  Long-Term Debt As % Of Capital
77%
  52-Week Price Range
$38.00 - $19.37

CommScope ($37; COMM), a maker of network-infrastructure gear, presents investors with nearly everything we seek in a stock: High Quadrix scores, robust operating momentum, rising analyst estimates, favorable share-price action, and an attractive valuation. Crucially, we also see several potential catalysts that could propel shares higher in the next 12 to 24 months. CommScope is a Buy and a Long-Term Buy.

Reasons for optimism

Founded in 1976, CommScope makes antennas and cables for wireless towers. It also designs other components that improve network performance. Customers include telecom operators, such as AT&T ($43; T) and Verizon Communications ($53; VZ); cable companies, such as Comcast ($70; CMCSa); and thousands of other large businesses.

Over the 12 months ended September, CommScope grew earnings per share 11%, sales 40%, and operating cash flow 105%. Most of that gaudy growth comes from a big acquisition, Broadband Network Solutions, purchased for $3 billion in cash in August 2015. The deal boosted annual revenue by about $1.7 billion and expanded CommScope's portfolio of wireless-network products, especially in the high-growth area of fiber optics.

Organic revenue growth hovers around 4%, despite management discontinuing less-profitable products and wireless carriers showing reluctance to invest in new equipment. Capital spending by U.S. wireless companies, down 10% in the first half of 2016, stabilized in the past few months and shows signs of rebounding in 2017.

CommScope should benefit if the U.S. government boosts infrastructure spending in coming years. The company is already participating in one such government program, Connect America Fund, to bring high-speed internet to rural areas.

Until recently, the presence of asset manager Carlyle Group, a major CommScope shareholder, has cast a shadow over the stock. Carlyle acquired CommScope in January 2011, only to take the company public 33 months later, in October 2013. CommScope shares have surged 138% since the IPO, despite steady downward pressure from Carlyle selling off its stake in the company. By the end of September, Carlyle had whittled its interest in CommScope down to 10%, from 32% in December 2015 and 54% in December 2014.

Conclusion

Management targets organic revenue growth in the mid-single digits in 2017, and the consensus projects 14% higher per-share profits on 4% higher revenue. Encouragingly, analyst estimates have increased since Comm-Scope's September-quarter report.

The median communication-equipment stock in the S&P 1500 is projected to grow profits just 1% in fiscal 2017. Estimates for about half of the stocks in the industry have declined in the past 60 days. CommScope shares trade at 12 times estimated 2017 profits, 23% below the industry median.

An annual report for CommScope Holding Co. can be obtained at 1100 CommScope Place SE, Hickory, NC 28602; (828) 324-2200; www.CommScope.com.

COMMSCOPE
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Sep '16
0.81
vs.
0.53
33%
32.77
-
28.28
15 - 13
Jun '16
0.74
vs.
0.49
51%
33.09
-
26.16
17 - 14
Mar '16
0.48
vs.
0.41
39%
28.14
-
19.37
15 - 10
Dec '15
0.42
vs.
0.38
38%
33.54
-
24.85
19 - 14
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2015
3.81
1.86
0.00
34.12
-
20.19
18 - 11
2014
3.83
2.23
0.00
27.96
-
16.86
13 - 8
2013
3.48
1.60
0.00
19.02
-
14.72
12 - 9
2012
3.32
1.19
0.00
NA
NA
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
91
98
74
59
48
76
74

   * Earnings exclude special items.
   † Quadrix scores are percentile ranks, with 100 the best.
   NA Not available.


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