Trump announces trade deal with EU following months of negotiations
On Tuesday, UBS initiated coverage on Viavi Solutions (NASDAQ:VIAV) stock, a company specializing in Test, Monitoring, and Assurance markets for communication networks, with a Neutral rating and a price target of $10.60.
Viavi, which also operates a smaller Optical Security business, has experienced a downturn in business, with revenues declining by 14% and 10% in fiscal years 2023 and 2024, respectively.
UBS anticipates a turnaround for Viavi starting in the second fiscal quarter, driven by increased investment spending by Communication Service Providers (CSPs) and a faster pace of network deployments. The firm projects that Viavi will return to mid-single digit growth by fiscal year 2026, bolstered by secular growth trends in fiber, 5G, and data centers.
The analyst from UBS forecasts a 280 basis point expansion in operating margins as revenue growth picks up, which is expected to contribute to a 46% growth in earnings per share (EPS) in fiscal year 2026.
Despite these positive near-term growth dynamics, the stock is considered to be fairly valued at 20 times UBS's fiscal year 2026 earnings estimate of $0.53, taking into account the business's cyclicality and mid-single digit growth profile over the longer term.
In other recent news, VIAVI Solutions has seen several significant developments. The company reported a net revenue of $252 million for the fourth quarter of 2024, a 2.4% increase sequentially but a 4.4% decrease year-over-year. The full fiscal year revenue was $1 billion, marking a 9.6% decline compared to the previous year.
VIAVI Solutions also announced a restructuring plan aiming for annualized cost savings of approximately $25 million by the end of fiscal 2025. The company anticipates revenue for the first quarter of fiscal 2025 to be in the range of $235 million to $245 million.
In another recent development, VIAVI Solutions entered an agreement with Telefónica Hispanoamérica to supply automated network inventory management tools. The company also launched a new Ethernet testing module, the ONE-1600, to support the emerging 1.6Tb/s ecosystem.
Rosenblatt adjusted the financial outlook for VIAVI Solutions, increasing the price target to $10.50 from the previous $8.25, while maintaining a Neutral rating. This adjustment comes after the company's first quarter fiscal year 2025 earnings report showed revenue and earnings per share falling short of expectations, but the company's guidance for the second quarter surpassed predictions.
Lastly, VIAVI Solutions' shareholders approved the board and executive pay, ratifying the appointment of PricewaterhouseCoopers LLP as the company's independent registered public accounting firm for the fiscal year 2025.
InvestingPro Insights
Recent data from InvestingPro adds depth to UBS's analysis of Viavi Solutions (NASDAQ:VIAV). Despite the company's recent revenue declines, InvestingPro Tips suggest that net income is expected to grow this year, aligning with UBS's projection of a turnaround. This optimism is further supported by the fact that two analysts have revised their earnings upwards for the upcoming period.
Viavi's financial health appears stable, with InvestingPro data showing that liquid assets exceed short-term obligations and the company operates with a moderate level of debt. This solid financial foundation could provide Viavi with the flexibility needed to capitalize on the anticipated growth in CSP investments and network deployments.
However, investors should note that Viavi is currently trading at high EBIT and EBITDA valuation multiples, which may reflect the market's expectations for future growth. The company's strong return over the last three months (23.27%) and significant price uptick over the last six months (26.61%) suggest that some of the anticipated turnaround may already be priced in, aligning with UBS's view that the stock is fairly valued.
For readers seeking a more comprehensive analysis, InvestingPro offers 8 additional tips for Viavi Solutions, providing a deeper understanding of the company's financial position and market performance.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.