ADTRAN: Network Upgrades Raise Hope, Competition Rife

On Jan 13, 2015, we issued an updated research report on ADTRAN Inc. (ADTN).

ADTRAN has delivered positive earnings surprises in all three quarters last year, with an average beat of 17.63%. In the third quarter of 2014, the company’s earnings were in line with the Zacks Consensus Estimate but revenues missed the same.

ADTRAN anticipates improved financial performance in 2015 on expectations of higher carrier expenditure both in the U.S. and Europe. Within Broadband Access, ADTRAN is poised to benefit from the continued strong momentum of TA 5000 and FTTN platforms owing to the network upgrade to Ethernet mostly by tier 2 and tier 3 carriers as well as higher broadband stimulus.

Recently, the company came up with Layer 2 and Layer 3 Gigabit access router – the NetVanta 5660 – which offers video, voice and data services at increased speeds. Regular product launches will certainly drive the top line for the company while moving ahead.

However, the broadband access and IP networking equipment market is highly competitive. The company competes with large and well-established networking OEMs, both in the enterprise and carrier market segments. As a result, sales in both tier 2 and tier 3 markets in the U.S. have deteriorated in the third quarter. Competition would further intensify if new companies enter the market or the existing ones expand their product lines. Rising competitive pressure will likely compel ADTRAN to slash product prices along with market share.

Moreover, ADTRAN’s products must comply with various regulations and standards defined by the Federal Communications Commission and Underwriters Laboratories. Products sold internationally may be required to comply with regulations or standards established by telecommunications authorities in various countries, as well as with those of certain international bodies.

Thus, the cost of complying with the evolving standards and regulations, or the failure to obtain domestic or foreign regulatory approvals in a timely manner may affect the company’s operations and financial condition adversely.

ADTRAN currently carries a Zacks Rank #3 (Hold).

Stocks That Warrant a Look

Other better-ranked stocks worth considering in this sector include ARRIS Group, Inc. (ARRS), Zayo Group Holdings, Inc. (ZAYO), and SBA Communications Corp. (SBAC). All three carry a Zacks Rank #2 (Buy).