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Investing.com -- Bank of America raised its rating on CommScope to Buy from Underperform after the network equipment maker agreed to sell its main business unit, saying this would help co reduce debt and reveals more value in what is remaining.
The brokerage also lifted its price target on the stock to $20 from $4.
CommScope is selling its CCS segment, which accounted for as much as three-quarters of the company’s core earnings, to Amphenol (NYSE:APH).
BofA said the deal is part of a broader breakup strategy that aims to cut debt, repurchase Carlyle’s preferred equity, and refocus the company on its remaining businesses.
CommScope has trimmed about $2 billion in debt since January, helping its shares climb from under $3 to $7.75 last week.
The latest sale is expected to generate proceeds that will further reduce its $7.4 billion debt load and allow it to retire Carlyle’s $1.26 billion in preferred equity.
After the sale, BofA sees the remaining units, Ruckus and ANS, as undervalued, trading at just 3 times estimated earnings.
The brokerage values them at roughly double that multiple, citing expectations for 9% annual growth and an 18% margin through 2025.
Ruckus and ANS posted strong second-quarter growth, up 47% and 65% year-on-year, respectively. But management expects earnings to ease in the second half due to one-time factors and typical industry swings.
Even with more modest near-term guidance, BofA sees a clearer balance sheet and stronger focus driving further gains in the stock.