Morgan Stanley Sees Near-Term Opportunity In Arris Int'l; Initiates With Overweight

ARRIS International plc ARRS faces near-term opportunity, with cable operator M&A concluding and the resumption of broadband investment, along with a need for better gateways and set-top boxes, Morgan Stanley’s Meta A Marshall said in a report. She initiated coverage of the company with an Overweight rating and a price target of $34.

Arris International’s results came under pressure last year as cable companies paused spending while carrying out M&As. The completion of these transactions would reignite spending, as cable operators work towards maximizing investments and further differentiating broadband service, analyst Marshall mentioned.

Arris International would also benefit from cost synergies from the Pace acquisition, which is estimated to result in ~10 percent of annual earnings accretion over the next two years.

Investments In Broadband To Increase

Cable companies are now ready to investment in broadband, which would benefit Arris International. Marshall explained, “Cable cos are in the best technological position to provide broadband service (by the efficiency of DOCSIS) and can provide fiber-like speeds to consumers at 20-40% the cost of telcos.”

In-home Investment To Remain Stable

Since cable companies would aim at retaining pay-TV customers by offering them better internet service and video offerings, this would boost the need for better in-home equipment, such as set-top boxes and gateways.

“As a result, while investment may be changing (e.g. better gateway and central set-top box with cheaper extra room boxes), we believe overall in-home investment will remain steady (cheaper box investment, more frequent replacement cycles), reducing the risk to Arris' premise equipment business,” the analyst commented.

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