Casa Systems Is Oversold, Morgan Stanley Says In Upgrade

A sharp price decline in Casa Systems Inc CASA — driven by a secondary offering prior to lockup expiration in April and first-quarter results in May — has begun to overly discount not only the company's expansion opportunities, but its core cable business, according to Morgan Stanley. 

The Analyst

Morgan Stanley's Meta Marshall upgraded Casa Systems from Equal-weight to Overweight with a $23 price target. 

The Thesis

Casa System's valuation stands at 13 times 2019 EPS, which is below the growth and profitability-adjusted multiple of 20-22, Marshall said in the Tuesday upgrade note. (See the analyst's track record here.) 

The stock's multiple is discounting the opportunity with core customers as they upgrade to DOCSIS 3.1 and next-generation architectures, the analyst said. 

Marshall sees Casa Systems as well-positioned in the second half of 2018 and expects the stock to revert to his base case scenario of 18 times 2019 EPS by the end of the year as the market gains more confidence in the company's track record.

Moves toward the bull case are more likely as the company demonstrates meaningful revenue in expansion areas like wireless in 2019, Marshall said. Morgan Stanley's bull case assumes the stock is going to trade at 24 times 2019 EPS as growth exceeds expectations.

The Price Action

Casa Systems was trading up 8.42 percent at $17.76 at the time of publication Tuesday afternoon. 

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