Harmonic Inc Has 'Limited Upside Potential' Says National Alliance Securities

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National Alliance Securities initiated coverage on Harmonic Inc. HLIT Friday with a Hold rating and $7 price target.

Analyst Brian Coyne noted that “despite our positive view of its market position and a reasonable valuation, we see limited upside potential for the stock given Harmonic’s stubbornly high cost structure, its smaller scale and dependence on project-based sales.”

“Harmonic’s high level of opex, which has been stuck in the mid-40 percent to 50 percent range vs. peers around 15 percent to 20 percent, is the biggest obstacle to us taking a more positive view on the shares,” according to the report.

Coyne explained that “massive growth in OTT video has led to fundamental shifts in the way content is produced and distributed, putting Harmonic’s historical advantages in compression and cable edge at risk. While the company has successfully engineered new platforms to address these shifts, the bigger issue is whether it can adapt to a new on-demand service delivery model and compete on less-familiar turf.”

The company will announce Q3 FY 2014 earnings Tuesday, October 28. Coyne estimated EPS at $0.03.

Harmonic Inc. recently traded at $6.22, down 1.66 percent.

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Posted In: Price TargetInitiationAnalyst RatingsBrian CornellNational Alliance
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