Aviat Networks is a buy, Roth says

Roth MKM analyst Scott W. Searle thinks Aviat Networks (Aviat Networks Stock Quote, Chart, News, Analysts, Financials NASDAQ:AVNW) is being unjustly ignored.

In a research update to clients January 28, Searle maintained his “Buy” rating and one-year price target of $59.00 on AVNW.

The analyst says the company’s serious outperformance has flown under the radar.

“Despite AVNW being one of the few names in the communications ecosystem to drive consistent growth, margin expansion and generate FCF since the start of the pandemic, shares trade at ~6x CY25 EPS (with preliminary NEC contribution),” the analyst said. “Additionally, we believe that core fundamentals remain healthy and the NEC acquisition is very much on track, likely to be more accretive sooner than management has indicated (our enclosed model indicates a Sept crossover vs Dec management guidance). Use the weakness as an entry point.”

Searle thinks AVNW will post EBITDA of $54.1-million on revenue of $370.2-million in fiscal 2024. He expects those numbers will improve to EBITDA of $61.2-million on a topline of $397.3-million the following year.

“While the communications landscape has experienced volatile performances throughout the pandemic and post-pandemic periods, AVNW has produced a top line FY20-23 CAGR of 13% (~11% organic), with expanding GMs/OMs (operating margins have expanded from 3.8% to 11.8%) while generating positive FCF,” the analyst added. “Unlike many of its broadband brethren, AVNW did not experience a boom-bust cycle in 2022 into 2023 and has consistently produced relatively stable growth. Note: Many broadband names sales declined 30%+ in 2023, vs 14.4% growth for AVNW. Also generally underappreciated by the Street is AVNW’s mix of business (preNEC) which is 2/3 private networks (and over 80% of North American sales). This provides sales stability and higher GMs.”