CommScope Investors Are Discounting Good News, JP Morgan Says
In a report issued Wednesday, JP Morgan analysts Rod Hall and Ashwin Kesireddy issued a Neutral rating and a December 2016 price target of $31.50 for Commscope Holding Company Inc (NASDAQ: COMM).
The stock, which was not rated previously, now “more fully discounts good news.”
Shares of Commscope were slightly up on Wednesday.
After a period of restriction, JP Morgan decided to once again rate Commscope. The firm issued a Neutral rating and a December 2016 $31.50 price target, which implies almost no upside from current prices. The experts assure that they still believe that the company is well positioned to benefit from ongoing “roll out and densification of 4G networks and the addition of TE’s BNS strengthens its position in the broadband and enterprise segments.”
Nonetheless, they think the stock largely discounts the company’s current earnings potential in a context of volatile carrier demand.
The report highlights six points:
1) The company completed the acquisition of Business Network Solutions from TE Connectivity Ltd (NYSE: TEL) in late August for roughly $3 billion.
2) Commscope’s revenue composition will change after the deal, the analysts estimate. They believe the preeminence of the Wireless segment, which currently accounts for 60 percent of revenue, will no longer be as marked. They project that Wireless will contribute with 42 percent of revenue, while Enterprise and Broadband each provide 29 percent. The firm likes to see lower proportionate Wireless exposure, but note that higher Broadband revenues, responsible for this shift, are also quite volatile.
3) JP Morgan anticipates cost savings derived from synergies will reach $66 million in 2016, especially in the second half of the year. The company guided for synergies of at least $50 million after the first year of completion of the purchase.
4) Whine BNS will be operated as one of the company’s business segments over the near term, the analysts expect “full financial integration to occur within a few quarters.”
5) Hall and Kesireddy estimate the deal will be 29 percent accretive to Commscope in 2016.
6) During the second quarter of 2015, Commscope raised $2.75 billion in new debt to finance the acquisition. According to the note, “the new debt is expected to add $35m-$36m in quarterly interest expense.”
Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.
Latest Ratings for COMM
Sep 2015 | JP Morgan | Assumes | Neutral | |
Aug 2015 | Jefferies | Maintains | Buy | |
Jul 2015 | Deutsche Bank | Maintains | Buy |
View More Analyst Ratings for COMM
View the Latest Analyst Ratings
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