Argus Projects 'Sustainable Acceleration' In Viavi's EPS Growth

Viavi Solutions Inc VIAV, a spin-off company carved out of JDSU in August 2015, has managed to win a bull in Argus.

The Analyst

Analyst Jim Kelleher upgraded shares of Viavi from Hold to Buy and set a $15 price target.

The Thesis

Viavi is showing signs of "sustainable acceleration in EPS growth" as its revenue growth accelerates, Kelleher said in a Tuesday morning note.

The positive opinion comes on the heels of the company's May 3 third-quarter report, which showed 11.9-percent net revenue growth and a 44.4-percent increase in non-GAAP EPS.

The AvComm and wireless test and measurement assets the company acquired from Cobham in Q3 will begin to add to non-GAAP EPS beginning in the fourth quarter of 2018, Kelleher said. 

Viavi is well-positioned for 5G wireless given its existing and acquired businesses, the analyst said.

Argus expects carriers that trimmed spending ahead of the adoption of the new standard to start spending more in the second half, with spending forecast to gather momentum across 2019 and intensify into 2020.

"Given the IP core at the heart of the 5G standard, as well as the massive traffic flow the new standards will enable, we expect demands on Viavi's test and measurement business to accelerate across the next several years," Kelleher said. 

Viavi's sharply above-consensus Q4 guidance suggests the Street is grossly underestimating the company's intermediate-term growth potential, the analyst said. 

With Argus viewing Viavi shares as being undervalued, the firm said an "intermediate-term Buy rating is appropriate."

The Price Action

Viavi shares have gained 13.5 percent year-to-date. The stock was up 1.4 percent at the time of publication Tuesday. 

Related Links:

5 Reasons B Riley Turned Bullish On II-VI

Analysis: Government 5G Network Unlikely, Despite Reports