Why CommScope Gets Downgrade From BofA Analyst

CommScope Holding Company Inc COMM is likely to generate low growth and its margins may tighten as component prices rise due to industry-wide supply constraints, according to BofA Securities.

The CommScope Holding Company Analyst: Tal Liani downgraded the rating for CommScope Holding Company from Buy to Neutral, while reducing the price target from $22 to $15.

The CommScope Holding Company Thesis: The company has limited near-term catalysts, with an expected slowdown in the back half of the year and a “potentially slower-than-expected decline in debt levels,” Liani said in the downgrade note.

“Growth remains dismal, ranging from -9% to +4% in the last four quarters, and we expect it to remain depressed until at least mid-FY22 when the underperforming Home segment is expected to be spun out,” the analyst wrote.

“In addition, operating margin has declined in the last three years, and we expect it to remain depressed at 11.8% for both FY21 and FY22, with the risk of further pressure in 2H and beyond as higher component costs roll into the P&L,” he further noted.

“We also highlight Management’s expectations for a weaker 2H coupled with lower free cash flow (FCF) levels, due to capex increases, capacity investments, and restructuring costs from the Home Networks spinoff,” Liani said.

COMM Price Action: Shares of CommScope Holding Company are up 0.84% to $13.89 at the time of publication Thursday.

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