Harmonic Stock A 'Top Pick' As Analyst Touts A 'Moat' That'll Stand 'Unchallenged'

  • Needham analyst Ryan Koontz reiterates Harmonic Inc HLIT with a Buy and a $19 price target.
  • Charter Communications, Inc CHTR announced Monday that it selected Harmonicas as its partner to deploy its CableOS virtual CMTS technology as a core element of its next-generation broadband network
  • The analyst has been expecting this win for several quarters and viewed the formal announcement as imminent when Casa Systems, Inc CASA acknowledged its loss at Charter last week. 
  • TSX-listed Vecima also announced a U.S. tier 1 MSO hardware supplier contract, which the analyst believes is with Charter and will be shared with HLIT. 
  • Koontz believes HLIT has the world's only vCMTS software product deployed at scale, including by its crucial customer Comcast Corp CMCSA
  • The analyst believes the Charter win could approach the size of Comcast, given that both operators are similar. 
  • HLIT's vCMTS software deal with Comcast was worth ~$150 million, and Koontz thinks Charter could be even more significant given additional DOCSIS 4 and FTTH features included. 
  • The analyst estimates the Charter hardware opportunity at $500 million-$700 million, including its subsidized rural expansions. 
  • Given Charter's aggressive public plans to complete its network upgrades over 2024-2026, Koontz expects HLIT could see initial revenue in 2H23 and a material ramp in 2024. 
  • The analyst sees this software win as highly strategic and sticky, with cable operators unlikely to add second vendors for their software core and unlikely to revisit a supplier decision for at least five years while providing future additional software sell-in opportunities. 
  • Koontz sees potential revenue upside to his 2H23 estimate and material upside ($40 million-$70 million) to 2024. The gross margin could also see a modest boost from the increased software mix. 
  • Charter's selection affirms the strength of HLIT's dominant market position, which the analyst expects to remain unchallenged for many years. 
  • HLIT remains among the analyst's top 2 picks for 2023. 
  • Price Action: HLIT shares traded higher by 8.82% at $14.24 on the last check Tuesday.
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