ADTRAN's Positive Pre-Earnings Validates Analyst's Surging US, European Fiber Build Theory

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  • Needham analyst Ryan Koontz reiterated a Buy on ADTRAN Holdings, Inc ADTN with a $28 price target.
  • ADTRAN pre-announced upside 3Q22 results with revenue of $340.7 million, beating consensus by 3% and non-GAAP operating income of $20.9 million, ahead of the $16.9 million consensus. 
  • Additionally, a non-GAAP gross margin of 38.1% was at the high end of the company's 3Q guidance, while a non-GAAP operating expense of $109 million was just above the high end of guidance.
  • Also Read:  ADTRAN Shares Pop On Upbeat Preliminary Q3 Numbers
  • He guessed ADTN benefited from solid demand across crucial U.S. and European broadband segments, while its European metro optical acquired from Adva performed reasonably well against a challenging macro. 
  • He anticipated a strong tailwind for ADTN's U.S. fiber access business and minimal setbacks to its European fiber access programs. In contrast, its more enterprise-centric metro optical business could begin to see a modest headwind from a challenging CY23 European macro. 
  • In his view, supply chain pressures are alleviating, so the upside to the CY23 gross margin appears likely.
  • ADTN did not provide 4Q22 guidance in its announcement, but he suspected an in-line guide on its earnings call on November 8 could give more upside given the stock's valuation.
  • Price Action: ADTN shares traded higher by 12.19% at $21.67 on the last check Tuesday.
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