Why Viavi (VIAV) is a Solid Investment Bet Post Q4 Results

·5 min read

Shares of Viavi Solutions Inc. VIAV have jumped 8.1% over the past three months, driven by healthy revenues on the back of a flexible business model and solid market response for cost-effective solutions. The company reported strong fourth-quarter fiscal 2022 results, with both the top and the bottom lines beating the respective Zacks Consensus Estimate. Backed by robust order trends, the company expects this growth momentum to continue driven by industry tailwinds such as 5G and mobile network densification, growing precedence of 3D sensing and anti-counterfeiting products. The current-fiscal earnings estimates have moved up 9% over the past year, while that for the next fiscal has risen 13.8%, implying healthy growth potential. Despite supply chain headwinds, this Zacks Rank #2 (Buy) stock appears to be a solid investment option at the moment. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Growth Drivers

Viavi boasts a comprehensive product portfolio that offers end-to-end network visibility and analytics that help build, test, certify, maintain and optimize complex physical and virtual networks. The company’s wireless and fiber test solutions are in the early stages of a multi-year investment cycle, fueled by the transition of OEMs and service providers to superfast 5G networks. The healthy growth traction is further demonstrated by the upside in wireless & fiber test, 3D sensing products, optical transport, Ethernet, broadband access, video test and storage network testing markets.

The 5G transition is expected to be disruptive in nature, potentially creating new avenues for industries across the board. 5G is likely to augment the telecommunications industry's scalability, security and universal mobility, thus propelling the proliferation of IoT. Telecom firms are enabling customers to move away from an economy-of-scale network operating model to demand-driven operations. They are ensuring seamless migration to 5G by offering easy programmability and flexible automation. The convergence of network technologies requires significant investments from both traditional carriers (telecom and cable) and cloud service providers. Viavi’s solutions are well-positioned to meet these rapidly changing industry trends, given its technology prowess, product depth and wide customer base.

Viavi engages in targeted restructuring activities to consolidate its operations and better align businesses with evolving market conditions and investment strategies. The company pursues a holistic growth model with strategic acquisitions and focused organic improvement plans. Of late, the OSP (Optical Security and Performance Products) segment has been benefiting from strong demand for 3D sensing and anti-counterfeiting products. The company expects to leverage major secular growth trends in 5G wireless, fiber and 3D sensing to achieve higher revenues and profitability with greater flexibility in the capital structure.

Demand for sophisticated anti-counterfeiting features, which consumers can easily validate without using special tools but are difficult to create or simulate using conventional printing technology, has led to the exponential growth of Viavi’s OSP segment. The custom optics products of the company offer an array of advanced technologies and precision optics to meet customers' specific requirements. Its 3D sensing optical filters and Engineered Diffusers are deployed in smartphones for facial recognition biometric authentication. In addition, optical filters and sensors deployed in autonomous vehicles and IoT devices offer lucrative opportunities for the company.

The stock delivered an earnings surprise of 12.4%, on average, in the trailing four quarters. With a VGM Score of B, the stock appears to be an enticing investment option to brace the market volatility.

Other Key Picks

TESSCO Technologies Incorporated TESS, carrying a Zacks Rank #2, delivered an earnings surprise of 61.9%, on average, in the trailing four quarters. Earnings estimates for TESSCO for the current year have moved up 49.4% since August 2021.

TESSCO offers products to the industry’s top manufacturers in mobile communications, Wi-Fi, wireless backhaul and related products. With more than three decades of experience, it delivers complete end-to-end solutions to the wireless industry.

Spirent Communications plc SPMYY carries a Zacks Rank #2. Earnings estimates for the current year for the stock have moved up 10.8% since August 2021, while that for the next year is up 11.8%.

Founded in 1936 and headquartered in Crawley, the United Kingdom, Spirent offers a comprehensive, end-to-end solution that validates forwarding performance, latency and functional capabilities in an integrated approach that reduces the cost of ownership. It is a leading provider of Ethernet validation solutions in the market.

Harmonic Inc. HLIT, sporting a Zacks Rank #1, delivered an earnings surprise of 79.8%, on average, in the trailing four quarters. Earnings estimates for Harmonic for the current year have moved up 17.1% since February 2022.

Harmonic provides video delivery software, products, system solutions and services worldwide. With more than three decades of experience, it has revolutionized cable access networking via the industry's first virtualized cable access solution, enabling cable operators to more flexibly deploy gigabit Internet service to consumers' homes and mobile devices.

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