We are retaining our Underperform recommendation on ADTRAN (ADTN), owing to dismal third quarter sales performance, poor customer concentration compared to other big players, decline in its traditional product line, and various governmental regulations and standards.
For the coming quarter, we expect revenue and margins growth to remain flat year over year and to be up marginally on a sequential basis given the economic volatilities. Moreover, the company competes with large and well-established networking OEMs both in the enterprise and carrier market segments.
Thus, we do not see any catalysts boosting the share prices higher from current levels and warn investors against accumulating ADTRAN shares. We have an Underperform rating with a target price of $18, based on 21.4x our earnings estimate for 2012.