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Zacks Industry Outlook Highlights Viasat, Clearfield and Aviat Networks
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For Immediate Release
Chicago, IL – August 31, 2022 – Today, Zacks Equity Research discusses Viasat, Inc. (VSAT - Free Report) , Clearfield, Inc. (CLFD - Free Report) and Aviat Networks, Inc. (AVNW - Free Report) .
Despite continued uncertainties triggered by supply-chain disruptions and chip shortages, the Zacks Wireless Equipment industry appears well poised to benefit from healthy demand trends with the gradual revival in post-pandemic market conditions. However, large-scale investments to support the transition to 5G and inflated raw material costs amid tense geopolitical situations are likely to erode margins.
Nevertheless, Viasat, Inc., Clearfield, Inc. and Aviat Networks, Inc. are likely to benefit in the long run from the increasing demand for state-of-the-art wireless products and services with a vast proliferation of IoT driven by a faster pace of 5G deployment.
Industry Description
The Zacks Wireless Equipment industry primarily comprises companies that provide various networking solutions, wireless telecom products, and related services for wireless voice and data communications through scalable modular platforms. Their product portfolio encompasses integrated circuit devices (chips) and system software for wireless voice and data communications, analog and digital two-way radio, satellite telecommunications, wireless networking and signal processing, and end-to-end enterprise mobility solutions.
The firms also provide a broad range of routing, switching and security products, video surveillance, and machine-to-machine communication components that secure VPN appliances, enable intrusion detection, and thwart data theft. Some firms even provide electronic warfare, avionics, robotics, advanced communications and maritime systems to the defense industry.
What's Shaping the Future of the Wireless Equipment Industry?
Accelerated 5G & Fiber Optic Deployment: With the exponential growth of mobile broadband traffic and home Internet solutions, demand for advanced networking architecture has increased manifold. This has forced service providers to spend more on routers and switches to upgrade their networks and support the surge in home data traffic. To maintain superior performance standards, there is a continuous need for network tuning and optimization, which creates demand for state-of-the-art wireless products and services.
Moreover, a faster pace of 5G deployment is expected to augment the scalability, security, and universal mobility of the telecommunications industry, and propel the wide proliferation of IoT. Expansion of fiber optic networks by carriers to support their 4G LTE and 5G wireless standards as well as wireline connections are likely to act as tailwinds.
The fiber-optic cable network is vital for backhaul and the last mile local loop, which are required by wireless service providers for 5G deployment. Fiber networks are also essential for the growing deployment of small cells that bring the network closer to the user and supplement macro networks to provide extensive coverage. The industry participants are facilitating its customers to move away from an economy-of-scale network operating model to demand-driven operations and seamlessly migrate to 5G by offering easy programmability and flexible automation through steady infrastructure investments.
Margin Woes Persist: Although higher infrastructure investments will eventually help minimize service delivery costs to support broadband competition and wireless densification, short-term profitability has largely been compromised. Margins are likely to be affected by the high cost of first-generation 5G products, profitability challenges in China, hostile Russian invasion in Ukrainian soil and pricing pressure in early 5G deals.
Uncertainty regarding chip shortage and supply-chain disruptions leading to a dearth of essential fiber materials, shipping delays, and shortages of other raw materials are likely to affect the expansion and rollout of new broadband networks. Extended lead times for basic components are also likely to impact the delivery schedule and escalate production costs.
High technological obsolescence of most products has also escalated operating costs with steady investments in R&D. However, with various administrative and federal support along with the ramp-up in production facilities for chip manufacturing, the demand-supply imbalance is likely to ease gradually in the upcoming quarters.
Evolution to Cloud Networking Architecture: The majority of the industry participants offer mission-critical communication infrastructure, devices, accessories, software, and services that enable its customers to run businesses with increased efficiency and safety for their mobile workforce. These systems drive demand for additional device sales, software upgrades, infrastructure overhaul and expansion as well as additional services to maintain, monitor, and manage these complex networks and solutions.
The comprehensive suite of services ensures continuity and reduces risks for constant critical communication operations. The wide proliferation of cloud networking solutions is further resulting in increased storage and computing on a virtual plane. As both consumers and enterprises use the network, there is tremendous demand for quality networking equipment.
Zacks Industry Rank Indicates Bullish Prospects
The Zacks Wireless Equipment industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #70, which places it at the top 28% of more than 250 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates encouraging prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. The industry's positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. While the industry's earnings estimates for the current year have increased 13.2% since August 2021, the same for 2023 has improved a stellar 279.2% over the past year.
Before we present a few wireless equipment stocks that are well-positioned to outperform the market based on a strong earnings outlook, let's take a look at the industry's recent stock-market performance and valuation picture.
Industry Lags S&P 500, Outperforms Sector
The Zacks Wireless Equipment industry has lagged the S&P 500 composite but outperformed the broader Zacks Computer and Technology sector over the past year.
The industry has lost 11.9% over this period compared with the S&P 500 and sector's decline of 11.6% and 27.6%, respectively.
Industry's Current Valuation
On the basis of trailing 12-month enterprise value-to EBITDA (EV/EBITDA), which is the most appropriate multiple for valuing telecom stocks, the industry is currently trading at 18.82X compared with the S&P 500's 12.53X. It is also trading above the sector's trailing-12-month EV/EBITDA of 9.45X.
Over the past five years, the industry has traded as high as 37.17X and as low as 11.6X and at the median of 18.82X.
3 Wireless Equipment Stocks to Keep a Close Eye On
Viasat: Headquartered in Carlsbad, CA, Viasat designs, develops and markets advanced digital satellite telecommunications and other wireless networking and signal processing equipment. The company serves its high-bandwidth, high-performance communications solutions to the public as well as military, enterprises and government enterprises.
The Zacks Consensus Estimate for current fiscal earnings has been revised 115.2% upward since May 2022, while that for the next fiscal is up 33.8% since March 2022. This Zacks Rank #2 (Buy) stock enjoys a leading position in the satellite and wireless communications market.
The company is ramping up investments to develop its revolutionary ViaSat-3 broadband communications platform, which will boast nearly 10 times the bandwidth capacity of ViaSat-2. The ViaSat-3 platform will help form a global broadband network with sufficient network capacity to allow better consumer choices with an affordable, high-quality, high-speed Internet and video streaming service. Further, the rising adoption of in-flight Wi-Fi services in commercial aircraft is proving conducive to the growth of the Satellite Services business.
Clearfield: Headquartered in Minneapolis, MN, Clearfield is a leading provider of communication networks, telecom services and support solutions. This Zacks Rank #1 stock has gained a solid 161.4% in the trailing 12 months. The Zacks Consensus Estimate for its current-fiscal earnings has been revised 101.9% upward over the past year. The stock has delivered an earnings surprise of 33.9%, on average, in the trailing four quarters.
The company is witnessing a strong demand environment, largely driven by an effort by rural broadband operators to establish themselves as dominant providers of broadband access. In addition, the company is gaining traction with Tier 2 carriers that aim to extend their fiber connectivity across the country. Clearfield is also less likely to witness supply constraints and cost issues given its lack of dependence on semiconductors. It further intends to triple its manufacturing footprint in Mexico to serve customers better.
Aviat Networks: Headquartered in Austin, TX, Aviat offers a comprehensive suite of wireless transport solutions. It delivered an earnings surprise of 15.9%, on average, in the trailing four quarters. Over the past two years, Aviat has gained 196.8%. Earnings estimates for the current year for this Zacks Rank #1 stock have moved up 19.8% since August 2021.
The company has created a niche market delivering more than one million systems to 170 countries worldwide, including communications service providers, local government, utility, federal government and defense organizations. With a long history of microwave innovations stretching across seven decades, Aviat provides localized professional and support services for simplified operations and the best overall customer experience. It appears well positioned to pivot toward sustained profitable growth in the near future.
Why Haven't You Looked at Zacks' Top Stocks?
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Viasat, Clearfield and Aviat Networks
For Immediate Release
Chicago, IL – August 31, 2022 – Today, Zacks Equity Research discusses Viasat, Inc. (VSAT - Free Report) , Clearfield, Inc. (CLFD - Free Report) and Aviat Networks, Inc. (AVNW - Free Report) .
Industry: Wireless Equipment
Link: https://www.zacks.com/commentary/1973922/3-wireless-stocks-likely-to-ride-on-accelerated-5g-rollout
Despite continued uncertainties triggered by supply-chain disruptions and chip shortages, the Zacks Wireless Equipment industry appears well poised to benefit from healthy demand trends with the gradual revival in post-pandemic market conditions. However, large-scale investments to support the transition to 5G and inflated raw material costs amid tense geopolitical situations are likely to erode margins.
Nevertheless, Viasat, Inc., Clearfield, Inc. and Aviat Networks, Inc. are likely to benefit in the long run from the increasing demand for state-of-the-art wireless products and services with a vast proliferation of IoT driven by a faster pace of 5G deployment.
Industry Description
The Zacks Wireless Equipment industry primarily comprises companies that provide various networking solutions, wireless telecom products, and related services for wireless voice and data communications through scalable modular platforms. Their product portfolio encompasses integrated circuit devices (chips) and system software for wireless voice and data communications, analog and digital two-way radio, satellite telecommunications, wireless networking and signal processing, and end-to-end enterprise mobility solutions.
The firms also provide a broad range of routing, switching and security products, video surveillance, and machine-to-machine communication components that secure VPN appliances, enable intrusion detection, and thwart data theft. Some firms even provide electronic warfare, avionics, robotics, advanced communications and maritime systems to the defense industry.
What's Shaping the Future of the Wireless Equipment Industry?
Accelerated 5G & Fiber Optic Deployment: With the exponential growth of mobile broadband traffic and home Internet solutions, demand for advanced networking architecture has increased manifold. This has forced service providers to spend more on routers and switches to upgrade their networks and support the surge in home data traffic. To maintain superior performance standards, there is a continuous need for network tuning and optimization, which creates demand for state-of-the-art wireless products and services.
Moreover, a faster pace of 5G deployment is expected to augment the scalability, security, and universal mobility of the telecommunications industry, and propel the wide proliferation of IoT. Expansion of fiber optic networks by carriers to support their 4G LTE and 5G wireless standards as well as wireline connections are likely to act as tailwinds.
The fiber-optic cable network is vital for backhaul and the last mile local loop, which are required by wireless service providers for 5G deployment. Fiber networks are also essential for the growing deployment of small cells that bring the network closer to the user and supplement macro networks to provide extensive coverage. The industry participants are facilitating its customers to move away from an economy-of-scale network operating model to demand-driven operations and seamlessly migrate to 5G by offering easy programmability and flexible automation through steady infrastructure investments.
Margin Woes Persist: Although higher infrastructure investments will eventually help minimize service delivery costs to support broadband competition and wireless densification, short-term profitability has largely been compromised. Margins are likely to be affected by the high cost of first-generation 5G products, profitability challenges in China, hostile Russian invasion in Ukrainian soil and pricing pressure in early 5G deals.
Uncertainty regarding chip shortage and supply-chain disruptions leading to a dearth of essential fiber materials, shipping delays, and shortages of other raw materials are likely to affect the expansion and rollout of new broadband networks. Extended lead times for basic components are also likely to impact the delivery schedule and escalate production costs.
High technological obsolescence of most products has also escalated operating costs with steady investments in R&D. However, with various administrative and federal support along with the ramp-up in production facilities for chip manufacturing, the demand-supply imbalance is likely to ease gradually in the upcoming quarters.
Evolution to Cloud Networking Architecture: The majority of the industry participants offer mission-critical communication infrastructure, devices, accessories, software, and services that enable its customers to run businesses with increased efficiency and safety for their mobile workforce. These systems drive demand for additional device sales, software upgrades, infrastructure overhaul and expansion as well as additional services to maintain, monitor, and manage these complex networks and solutions.
The comprehensive suite of services ensures continuity and reduces risks for constant critical communication operations. The wide proliferation of cloud networking solutions is further resulting in increased storage and computing on a virtual plane. As both consumers and enterprises use the network, there is tremendous demand for quality networking equipment.
Zacks Industry Rank Indicates Bullish Prospects
The Zacks Wireless Equipment industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #70, which places it at the top 28% of more than 250 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates encouraging prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. The industry's positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. While the industry's earnings estimates for the current year have increased 13.2% since August 2021, the same for 2023 has improved a stellar 279.2% over the past year.
Before we present a few wireless equipment stocks that are well-positioned to outperform the market based on a strong earnings outlook, let's take a look at the industry's recent stock-market performance and valuation picture.
Industry Lags S&P 500, Outperforms Sector
The Zacks Wireless Equipment industry has lagged the S&P 500 composite but outperformed the broader Zacks Computer and Technology sector over the past year.
The industry has lost 11.9% over this period compared with the S&P 500 and sector's decline of 11.6% and 27.6%, respectively.
Industry's Current Valuation
On the basis of trailing 12-month enterprise value-to EBITDA (EV/EBITDA), which is the most appropriate multiple for valuing telecom stocks, the industry is currently trading at 18.82X compared with the S&P 500's 12.53X. It is also trading above the sector's trailing-12-month EV/EBITDA of 9.45X.
Over the past five years, the industry has traded as high as 37.17X and as low as 11.6X and at the median of 18.82X.
3 Wireless Equipment Stocks to Keep a Close Eye On
Viasat: Headquartered in Carlsbad, CA, Viasat designs, develops and markets advanced digital satellite telecommunications and other wireless networking and signal processing equipment. The company serves its high-bandwidth, high-performance communications solutions to the public as well as military, enterprises and government enterprises.
The Zacks Consensus Estimate for current fiscal earnings has been revised 115.2% upward since May 2022, while that for the next fiscal is up 33.8% since March 2022. This Zacks Rank #2 (Buy) stock enjoys a leading position in the satellite and wireless communications market.
The company is ramping up investments to develop its revolutionary ViaSat-3 broadband communications platform, which will boast nearly 10 times the bandwidth capacity of ViaSat-2. The ViaSat-3 platform will help form a global broadband network with sufficient network capacity to allow better consumer choices with an affordable, high-quality, high-speed Internet and video streaming service. Further, the rising adoption of in-flight Wi-Fi services in commercial aircraft is proving conducive to the growth of the Satellite Services business.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Clearfield: Headquartered in Minneapolis, MN, Clearfield is a leading provider of communication networks, telecom services and support solutions. This Zacks Rank #1 stock has gained a solid 161.4% in the trailing 12 months. The Zacks Consensus Estimate for its current-fiscal earnings has been revised 101.9% upward over the past year. The stock has delivered an earnings surprise of 33.9%, on average, in the trailing four quarters.
The company is witnessing a strong demand environment, largely driven by an effort by rural broadband operators to establish themselves as dominant providers of broadband access. In addition, the company is gaining traction with Tier 2 carriers that aim to extend their fiber connectivity across the country. Clearfield is also less likely to witness supply constraints and cost issues given its lack of dependence on semiconductors. It further intends to triple its manufacturing footprint in Mexico to serve customers better.
Aviat Networks: Headquartered in Austin, TX, Aviat offers a comprehensive suite of wireless transport solutions. It delivered an earnings surprise of 15.9%, on average, in the trailing four quarters. Over the past two years, Aviat has gained 196.8%. Earnings estimates for the current year for this Zacks Rank #1 stock have moved up 19.8% since August 2021.
The company has created a niche market delivering more than one million systems to 170 countries worldwide, including communications service providers, local government, utility, federal government and defense organizations. With a long history of microwave innovations stretching across seven decades, Aviat provides localized professional and support services for simplified operations and the best overall customer experience. It appears well positioned to pivot toward sustained profitable growth in the near future.
Why Haven't You Looked at Zacks' Top Stocks?
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.