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RBC Capital Markets Upgrades Arris Group on Cable Modem Market Position

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In a report published Tuesday, RBC Capital Markets analyst Mark Sue upgraded Arris Group, Inc. (NASDAQ: ARRS) to Outperform from Sector Perform, raising its price target from $118.00 to $128.00.

According to the article, the upgrade is based on market share gains from competitor Cisco, who seems pre-occupied with protecting its overall gross margins, new products in CCAP and residential video gateways.

“Arris, coupled with the Motorola Home assets, now has ~35% of the cable modem market, 15% of the set-top box (STB) market and ~40% share of CMTS market,” the report noted. “Considering lack of product enhancements and focus on protecting margins from competitor Cisco, Arris may be in a position to gain incremental market share. A theoretical assumption of the bulk of Cisco's entire share implies our base-line CY15 revenues for Arris may increase from $5.0B to $7.5B. Incremental gains and enhanced volumes implies our best-case CY15 earnings of $3.00 (upside scenario $36) if Arris grabs sizable share from Cisco. We conservatively estimate Arris may gain closer to 10% to 15% market share from Cisco with Pace, Samsung and Technicolor likely to be share gainers.”

The report further asserted that cash flow is being improved by operational improvements, top-line growth and lower taxes driving an improved FCF outlook, which is believed to offer ARRS the flexibility it needs to de-leverage the balance sheet from current $1.37B net-debt levels. The analysts believe ARRS can build on its cash generation with FCF of ~$340M in CY14E and $415M in CY15E.

ARRS closed Monday at $24.93 with shares trading up at 3.66 percent.

Latest Ratings for ARRS

DateFirmActionFromTo
May 2015Goldman SachsUpgradesNeutralBuy
Apr 2015Raymond JamesUpgradesOutperformStrong Buy
Apr 2015RBC CapitalMaintainsOutperform

View More Analyst Ratings for ARRS
View the Latest Analyst Ratings

Posted-In: Mark Sue RBC Capital MarketsAnalyst Color Upgrades Analyst Ratings

 

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