An Under-The-Radar Fiber Internet Play From Morgan Stanley

In a report published Wednesday, Morgan Stanley analysts initiated coverage of

with an Equal-Weight rating and a price target of $9. Calix's product portfolio puts the company in a strong position to capitalize on the move to fiber and the adoption of FTTH. However, such a move is taking a long time. In the report Morgan Stanley noted, "While Google Fiber, competition, and redefinitions of broadband speed are catalysts for fiber investment, strained capital budgets and regulatory issues (e.g. net neutrality) appear to be holding back investment for the time being.". Although the company is poised to benefit from its investments in international salesforce and partnerships, the pace of high-speed fiber adoption remains crucial for margin expansion. "Until there is a move towards more widespread high-speed fiber adoption (e.g. only 79 of Calix's ~1,200 customers have announced gigabit fiber plans), we think the company will struggle to grow at or exceed consensus expectations for the next few Q's," the analysts mentioned. Market expectations related to the company's growth appear to be unrealistic. The analsyts added, "…we think that acceleration is still a ways off due to strained capital budgets and regulatory uncertainty."