On Wednesday, Rosenblatt Securities adjusted its price target for Viavi Solutions (NASDAQ:VIAV), reducing it to $13.00 from the previous $15.00, while reaffirming a Buy rating for the stock. This change comes after a recent development where Keysight Technologies (NYSE:KEYS) emerged as the leading contender to acquire Spirent Communications, outbidding Viavi by approximately 15%.
Rosenblatt's stance is that Viavi is unlikely to engage in a bidding war over Spirent, with Keysight's offer of 199 pence per share, totaling around $1.5 billion, positioning it as the probable acquirer. Despite this, the firm continues to endorse Viavi with a Buy rating.
The positive outlook is based on several factors, including expectations for a recovery in telecom demand in the second half of 2024 and into 2025, Viavi's expanding 800G Datacom Lab Test business, and the potential for other mergers and acquisitions, such as with NetScout.
The initial increase in Viavi's price target to $15 was a reaction to the anticipated earnings per share (EPS) accretion from the Spirent deal. However, with the acquisition looking less likely, Rosenblatt has reverted to a $13 price target. This valuation is derived from applying a 2.8x enterprise value-to-sales ratio.
Rosenblatt emphasizes that despite the setback with the Spirent acquisition, Viavi remains an attractive investment. The firm points to the bottoming out of telecom demand, which is projected to strengthen later this year and more significantly in 2025. Additionally, the growth of Viavi's 800G Datacom Lab Test business is expected to become increasingly evident in the company's financials as the market for Telecom 800G Test equipment improves.
InvestingPro Insights
Amidst recent market developments and Rosenblatt Securities' adjustment of Viavi Solutions' price target, InvestingPro provides additional insights that may be valuable to investors considering the company's stock. According to InvestingPro data, Viavi Solutions has a market capitalization of approximately $2 billion and is trading at a high earnings multiple with a P/E ratio of 406.82. This high valuation metric suggests that investors have high expectations for the company's future earnings growth.
InvestingPro Tips indicate that analysts are expecting net income growth for Viavi this year, which aligns with Rosenblatt's positive outlook on the company's recovery in telecom demand and expansion in the 800G Datacom Lab Test business. However, it's important to note that analysts also anticipate a sales decline in the current year, which could impact the company's revenue streams. Despite this, Viavi's liquid assets exceed its short-term obligations, providing some financial stability in the face of potential revenue fluctuations.
With the context of these metrics and analyst expectations, Viavi's current price, at the previous close of $8.91, sits below both the analyst target fair value of $13 and InvestingPro's fair value estimate of $8.41. This could suggest that the stock is undervalued at its current price, presenting a potential opportunity for investors. For those looking to delve deeper into Viavi's financial health and future prospects, InvestingPro offers additional tips, with a total of 9 tips available at https://www.investing.com/pro/VIAV. To gain access to these insights, readers can use the coupon code PRONEWS24 to receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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