Goldman: Buy Arris Group

In a report published Tuesday, analysts at Goldman Sachs upgraded ARRIS Group, Inc. ARRS from Neutral to Buy. The price target was raised from $38 to $42. The analysts expect the stock to outperform, driven by industry consolidation and improvements in the cyclical outlook. The analysts expressed their optimism regarding the company due to "1) the proposed acquisition of Pace and 2) more clarity on the cable/telco industry landscape." The acquisition of Pace could prove accretive to the company's EPS in 2016. In addition, the termination of cable M&A has mitigated concerns regarding capex volatility. "Net shares are up only 12 percent since the Pace acquisition announcement, despite 16 percent potential EPS accretion from the deal (company midpoint target), better capital allocation, and expected improvement in CPE capex in 2H15," the analysts said. Comments from Arris Group's largest customers and the capex guidance also indicate that capex would shift from the mid-teen decline, year on year, in 1H15 to mid-single-digit growth, year on year, in 2H15. Goldman Sachs expects the company to return to year on year growth in 2H15 and 2016.