ADTRAN (NASDAQ:ADTN) has been injured by slower telecom spending in the U.S. this year. In spite of the fact that the organization's universal sales have been developing at a quick pace, it isn't discovering the same footing in the domestic business sector. Prior, it looked like ADTRAN will profit from At&t's Project VIP take off. Be that as it may, this hasn't been the case so far.
Investors seem to be losing certainty in the stock. Also, ADTRAN's first-quarter results were adverse because of concerns that slow domestic telecom spending will keep going ahead. Notwithstanding, the long haul investor may sense an open door in ADTRAN's decline this year as there are a couple of key areas that may drive its development.
The domestic business sector should move forward
The first quarter started sluggishly for ADTRAN as it saw powerless spending in the Tier 2 and Tier 3 transporter markets. On the other hand, the situation enhanced at the end of the quarter and should pick up force going ahead as the FCC's Connect America Fund (CAF) activity gains steam.
- Warning! GuruFocus has detected 2 Warning Signs with ADTN. Click here to check it out.
- ADTN 15-Year Financial Data
- The intrinsic value of ADTN
- Peter Lynch Chart of ADTN
At present, telecom carriers are transitioning from the erstwhile Universal Service Fund (USF) and Intercarrier Compensation (ICC) to the new CAF that is focused on broadband development. The FCC has upgraded subsidizing for CAF in the second phase of the execution and ADTRAN is cheerful that this will drive up telecom spending going ahead.
Also, ADTRAN administration believes that the rollout of ultrahigh speed access will be an alternate catalyst going ahead.
Presently, ADTRAN may be a beneficiary of this disruptive move from Google. Then again, even At&t reported in April that it may convey its fiber-optic service to 100 cities and municipalities, including 21 new metro areas. After this move, At&t will have the capacity to offer 1 Gigabit per second speeds with its ultra-fast fiber system. This is a part of At&t's Project Velocity investment plan worth $14 billion that was launched to improve wireless and wireline IP broadband networks.
Worldwide development and margin expansion
The worldwide business sector accounts for around 36% of ADTRAN's revenue and it is developing quickly. Truth be told, worldwide sales were up 56% year-over-year in the first quarter. ADTRAN's broadband access products are in great request in markets such as Latin America and Europe, Middle East, and Africa. Likewise, ADTRAN is seeing speeding up in the vectoring take off in Europe, which is prompting strong force in its VDSL products.
Additionally, an increase in sales of the broadband products has resulted in a solid change in its gross margin. In the first quarter, ADTRAN's gross margin was 52.9%, an impressive bounce from 48.7% in the year-back period. The margin figure should enhance further later on as the selection of the organization's new products continues.
ADTRAN's stock value decline this year has made the stock cheaper. It trades at 27 times last year earnings, yet at just 17 times one year from now earnings. Given that the organization is recording solid development in the gross margins, there's a great risk that its earnings will increase going ahead.
Additionally, considering its low obligation of just $30 million, a strong cash position of $142 million, and a better than average dividend yield of 1.60%, ADTRAN looks like a decent purchase. So, with the stock exchanging close to its 52-week low, it may be a decent time to purchase ADTRAN as it looks generally positioned for the long run.