Barrington Upgrades Sonus Networks To Outperform, Sees Valuation As 'Compelling'

In a report published Thursday, Barrington Research analyst Ted Moreau, Jr upgraded the rating on Sonus Networks, Inc. SONS to Outperform, with a price target of $10. The company has reiterated its guidance for 2015 and the analyst believes that the stock valuation is attractive at present.

For Q2, Sonus Networks reported its revenue in-line with the estimates, representing 9 percent sequential growth, following the meaningfully depressed Q1. However, revenue was down about 28 percent year-on-year, with several of the company's large clients pausing their spend and allocating capital to expansion.

However, Sonus Networks also announced several customer wins, which the analyst believes could help diversify the company's revenue stream and reduce Sonus' customer concentration over time.

Earnings and profitability for Q2 were better than expected, driven by the company's cost reduction initiatives.

According to the Barrington Research report, "Sonus remains on track to achieve approximately $20 million in annualized cost savings compared with 2014. We estimate these cost savings, in conjunction with the recovery of revenue in the second half of 2015, could drive operating profit margins back into the mid-teens by Q4."

The analyst also expressed relief at the company reiterating its 2015 revenue guidance, while adding that a majority of the revenue in 2H15 was likely to be driven by a recovery in spending by telecom service providers in the US, along with recent customer wins.